Mergers skyrocket in '96

Everyone has the basic instinct of survival. For IT companies, surviving 1996 meant big bucks and big deals were a must to beat the raising tide of rival pressures.

The number of mergers and acquisitions in the North American IT industry--including software, hardware, telecommunications, and media-content--rose 26 percent to 1,962, breaking the record set in 1995 of 1,563 transactions, according to a Broadview 1996 year-end report.

Transactions totaled $164.6 billion in 1996, doubling receipts tallied in 1995 of $82.8 billion.

Companies were reacting to a do-or-die market.

"Rapid technological change means that companies must bring new products to market quickly or lose out completely," said Broadview chairman Charlie Federman in a statement. "This creates opportunities for both large companies as well the niche players. Small companies need access to distribution channels controlled by large companies, and large companies need access to technology developed by nimble small companies."

But the spend, spend, spend mentality was limited to only a handful of companies; it was their mergers and acquisitions tipped the scales.

"The growth in M&A transaction value in 1996 was largely the result of some major deals by big players that pumped up valuations in many sectors," said Federman.

The number of transactions in the telecommunications sector rose by ten percent to 265 in 1996, but the total value grew by 246 percent. Four deals: Bell Atlantic-Nynex; SBC-Pacific Telesis; British Telecom-MCI; and WorldCom-MFS Communications accounted for $70.7 billion, almost half the value of all 1,962 transactions.

"This year's Telecommunications Act has given more freedom of action, leading quickly to an initial round of consolidation--an inevitable conclusion for a market whose success is no longer predicated on geography," commented Federman.

Others reacted to a competitive market by investing in self-preservation: They expanded core capabilities instead of branching out.

IT companies "are now seeking a global footprint based on their core businesses, turning away from too much diversification. For now, hardware companies are remaining hardware companies; they are building end-to-end customer capabilities to secure competitive advantage in the internetworking market," said Federman.

The industry is also set for a flood of mergers and acquisitions in 1997. Broadview predicts that 72 percent of North American companies will pursue a merger this year, an eight-percent increase over 1996. Net media and content companies will lead the way.

Worldwide, there were 3,342 IT merger and acquisition transactions in 1996, up 15 percent from 2,913 in 1995. Transaction value increased to $234.2 billion, up from $134.0 billion the previous year.

A complete copy of the 1996 Year-End Merger and Acquisition Report, is available at Broadview's Web site.