Tech M&A outlook to remain bullish

Judging from the quantity and value of transactions in the first few months of 2011, merger and acquisition activity in the innovation sector is set to continue, say industry insiders. They add that with such healthy appetite, bolstered by cash balances unused while the before economic downturn, mega-deals in the range of billions of dollars are not unlikely.

M&A activity in the research markets has been very bullish in 2011 to date, according to Benjamin Ong, mergers and acquisitions partner at KPMG Corporate Finance in Singapore.

Barring any significant negative global event, the outlook is very strong for the rest the year, Ong said, adding that 2011 will be a "tremendous year of innovation M&A".

Other prolific deals in the tech realm this year include Twitter's US$40 million Tweetdeck purchase, AOL's acquisition of The Huffington Post for US$315 million, Seagate's swallowing of Samsung's hard drive business for near US$1.4 billion, and Western Digital's US$4.3 billion bid for Hitachi's hard drive unit.

Big deals in cloud, social, e-commerce KPMG's Ong identified cloud computing, social networking and e-commerce as segments where tech consolidation is primarily taking place.

As enterprise adoption of cloud grows, large telcos and IT services companies are jostling to become global leaders in providing cloud computing services including software-as-a-service, he explained, pointing to Verizon's US$1.4 billion acquisition of Terremark as an illustration.

The social networking space

In the social networking space, Facebook continues to be "acquisitive" and has been eyeing mobile startups and companies that have the innovation and services that provide greater interaction to the global Facebook community, just as its US$70 million Snaptu buy in March, Ong noted.

In the Ernst & Young report, Joe Steger, the company's global research transaction advisory services leader, highlighted similar observations in the cloud, SaaS, social media, e-commerce and mobile sectors. He added that these M&A trends speak to the rapid change driven by cloud computing, social networking, smart mobility and the ways in which innovation is becoming an increasing part of day in day out life.

Mega deals after all possible Using software giant Microsoft's US$8.5 billion acquisition of VoIP (Voice over Internet Protocol) provider Skype as an illustration, Michel Birnbaum, general partner at venture capitalist firm iGlobe Partners, told ZDNet Asia there is the opportunity of meanwhile another mega deal in the tech sector because there are similar companies that can command a high premium.

Big companies just as Microsoft and Google do not always have the "necessary DNA" to initiate certain types of business internally, and given they have such "huge war chests", they can "instantly" become serious contenders in specific segments, he explained in an e-mail.

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