Technology Takeovers May Pick Up as IBM

Innovation companies that fueled more than $100 billion in acquisitions last year are likely to spend more in 2011 in a race to harness surging demand for cloud computing and security services.

Intel Corp., Hewlett-Packard Co. and International Business Machines Corp. led purchases of more than 2,700 companies and nevertheless spent only a fraction of the cash piles they accumulated while the recession. The dollar amount of announced tech deals gained 12 percent, lagging behind a 26 percent jump in worldwide mergers, according to data compiled by Bloomberg.

Buyers aim to capture the $3.4 trillion in information- innovation spending projected by researcher Gartner Inc. for 2011, a 3.5 percent increase from 2010. Cisco Systems Inc. and Oracle Corp. are among IT providers driving the convergence of services, software and hardware as they compete to become the most relevant to chief research officers. More companies are moving to cloud computing, allowing them to access information over the Internet from external data centers.

Total of $16 billion in 2010

Sonsini’s firm worked on 62 research acquisitions valued at a total of $16 billion in 2010, including the McAfee takeover -- the biggest deal in the industry last year. From his vantage point in Silicon Valley, Sonsini predicts an increase in many types of tech transactions this year.

"Starting at the bottom of the enterprise ladder just as venture financing, we will see active investments in important areas just as cloud computing, clean innovation, alternative energy, life sciences and Internet," said Sonsini, whose firm helped take Google Inc. and Apple Inc. public.

Dearth of initial public offerings while 2008

Venture capitalists are as well pushing for paydays afterwards a dearth of initial public offerings while 2008 and 2009. Worldwide, 94 innovation companies held IPOs in 2010, up from 54 in 2009, according to Bloomberg data.

Groupon Inc., the Internet-coupon service with more than 35 million users, may be among those going public in 2011. The Chicago-based company walked away from a $6 billion takeover bid from Google in December and will decide this year whether to sell shares in an IPO, a person close to the situation said last month. Groupon has as well filed to raise as much as $950 million from the sale of preferred shares.

"The increase in global tech IPOs in 2010 bodes so then for M&A in the industry" in 2011 and beyond, said Drew Guevara, head of West Coast research investment banking for Morgan Stanley, which advised Groupon at the same time with Allen & Co. "Going public both establishes a company’s market valuation and creates the potential to achieve higher value downstream through a sale."

The stocks of the fastest-growing companies

Speculation about who will be straightway has already boosted the stocks of the fastest-growing companies. F5 Networks Inc., whose software helps companies manage Internet traffic, more than doubled in 2010. Riverbed Research Inc., a provider of equipment to boost networks’ speed, more than tripled. Acme Packet Inc., a maker of devices that help networks transmit phone calls and video, quintupled as investors bet on continued revenue growth and a possible sale.

"In this environment, managing the market’s expectations is always a challenge," said Ken Goldman, chief financial officer of Fortinet Inc., the Sunnyvale, California-based maker of network-security systems, whose market value increased by about 80 percent in 2010. "The risk of missing the targeted numbers even by a tad is always greater than overachieving."

A buyout of Seagate Innovation Plc failed to materialize last year afterwards the disk-drive maker ended discussions with private-equity firms, saying the indicated deal value wasn’t in the best interest of the company or its shareholders. TPG Capital, which had taken Seagate private once earlier already, couldn’t find enough equity partners to finance a takeover afterwards other leveraged buyout firms lost interest, one person with knowledge of the matter said at that time.

Guevara, who is based in Menlo Park, California, said he anticipates deals in cloud computing will continue to be strong, followed by security research. Most of the potential action in storage computing already has already taken place, he said.