KUHN CAPITAL Tuesday, October 17, 2017
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The Little Engine

8/25/10

Tech M&A continues to chug through -- and even pick up steam in -- the stygian darkness of our current economy. As they have in past recessions, deals featuring IT and communications companies account for the biggest number of all deals closed year to date on US soil.

According to Capital IQ, tech-related deals totaled 1,021 through July 2010 versus 877 for the same period last year. Software company sales accounted for the single largest tech industry sector by deal count with 57% of announced US transactions through July of this year. Tech hardware deals represented 20% of all closed deals, following by IT or tech services at 14% and telecom services at 9%.

Why do tech deals account for so many transactions and why has the number risen amidst broad M&A downturns elsewhere?

We think there are several reasons:

  • The rate of new tech company creation is persistent and striking. No matter how many young, smaller but rapidly-growing players the big guys may gobble up, there always seem to be more coming. Constant tech advances facilitate new applications like cloud computing, social networking and better security systems: these in turn create new demand.

  • Even in bad times, companies spend money on updating their automated capabilities because doing so saves them money and quickly. Even the suffocating cloud of new Federal regulations coming down the pike is grist for the IT industry mill.

  • The strategic buyers of tech companies are more entrepreneurial and less lemming-like compared to their mature industry peers. While old economy companies are famously sitting on record cash hoards, larger tech company CEOs are an aggressive bunch who tend to view the current economy as a buying opportunity. Consider Larry Ellison.
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