Report Says High-Tech Mergers And Acquisitions Soar
(01/21/98; 4:26 p.m. EST)
By Gabrielle Jonas, TechInvestor
High-tech merger and acquisition transactions totaled $242.8 billion in
1997 compared with $207.2 billion in 1996, according to a report
released Wednesday.
The number of mergers and acquisitions reached 4,040, according to
Broadview Associates, an investment bank based in Fort Lee, N.J., that
specializes in high-tech mergers. The 1997 number of deals is 25 percent
higher than in the 3,224 in the previous year, according to Broadview.
The increased riskiness of IPOs may be a factor. "The record number of
public offerings in recent years flooded the market with technology
companies," said Paul Deninger, chairman and CEO of Broadview, in a
statement. "These companies now often find themselves competing for the
attention of analysts -- and without adequate coverage, their
performance lags. These days, Wall Street has little patience -- a newly
public company that fails to meet expectations one quarter can quickly
fall out of favor."
Rather than risking the uncertainty of the IPO route, an increasing
number of privately held technology companies are using merger and
acquisition (M&A) transactions as their preferred vehicle for accessing
capital and technology, Deninger said.
Last year saw the continued trend toward telecommunications companies
offering their customers a "one-stop shopping" source for local
telephone, cellular, long distance, Internet, and intranet services. In
1997, there were 381 telecommunications transactions, up 33 percent from
287 transactions in 1996.
The value of the telecom deals fell, however, 14 percent to $59.3
billion from a record high of $69.1 billion in 1996 -- an unusual year
where three mega-transactions accounted for nearly 74 percent of the
transaction value in telecom M&A.
However, in 1997, the telecom sector recorded the largest M&A
transaction in all of corporate history, with the pending acquisition of
MCI by WorldCom. WorldCom also announced its intent to acquire Brooks
Fiber Properties, a provider of local communications service, for $2.1
billion. In another major transaction, Century Telephone Enterprises
acquired Pacific Telecom, a provider of local exchange and cellular
telecom services for $1.5 billion.
"While deregulation has opened the gates for continued consolidation
among telecommunications companies, the 'door' will not be fully open
until all companies can freely compete in each other's markets," said
Deninger. "Those telecommunications firms that are striving to achieve
critical mass across local, long distance, and cellular markets -- as
reflected by WorldCom's multiple acquisitions, AT&T's announced
acquisition of TelePort and SBC's announced takeover of SNET -- could be
the winners."
M&A activity in the hardware sector in 1997 was driven by bigger deals
resulting from the continued build-out of the information highway and
the consolidation in the defense industry. The 389 deals worth a record
$48.8 billion closed last year, compared with 310 such deals valued at
$27.3 billion in 1996. The acquisitions made by 3Com, Ascend
Communications, and Lucent Technologies helped bolster existing product
lines for integrating voice and data communications. Meanwhile, Compaq's
takeover of Tandem Computers gave it a new product line to lessen its
dependency on the PC and extend enterprise computing position, Deninger
said.
On the other hand, Raytheon's acquisitions of Hughes Electronics' and
Texas Instruments' defense electronics businesses were "pure
consolidation plays to ensure them a bigger piece of a rapidly shrinking
defense spending pie," he said.
Software products and services comprised one-third of M&A transactions
in 1997, a trend that was flat with the year before. Such transactions
were up 30 percent from 1996, while the value of these transactions rose
36 percent. The number of acquisitions of privately held software
companies increased by 36 percent to 678 transactions, while the number
of software companies going public in 1997 declined by 38 percent to
only 80 IPOs in 1997.
There was an increase of 83 percent over 1996 in the number of publicly
held software companies that were sold in their entirety. Twenty-two
acquisitions were led by equity and buyout funds including some
first-time players.
The media and information services sector had the highest M&A growth
rate with 525 transactions in 1997, an increase of 47 percent over 1996.
Total deal value fell 17 percent from $21.4 billion in 1996 to $17.8
billion in 1997 as a result of fewer multibillion dollar deals. |
