Credit crunch dampens tech M&As

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The latest IT mergers and acquisitions (M&A) figures have revealed the credit crunch has finally taken hold across the IT industry last quarter.

Technology M&A spending fell by almost a third in the last three months to $37 billion (£21 billion) compared to $58 billion (£33 billion) spent during the same period last year, according to analysts at the 451 Group.

The report said the slump in deals has taken place against the backdrop of recent historic changes on Wall Street, which saw the likes of Lehman Brothers go the wall and the collapse of the world's largest insurance company AIG, among others.

These conditions, it said, led to “potential acquirers stepping out of the market,” where deals valued at more than $1 billion (£565 million) fared worst. In fact, the report found only six of these deals were announced from July to September 2008 - down from 11 struck during the same quarter last year and 22 signed in the third quarter of 2006.

It added that the lack of credit liquidity had also depleted the number leveraged buyouts from 36 during the third quarter of last year to just 12 in the last quarter.

“While the private equity firms have billions in equity capital, they have been holding onto it tightly – even as some tech companies across the board have seen their valuations cut by 20-30 per cent,” according to the report author and 451 Group analyst, Brenon Daly.

Strategic buys on the part of tech companies themselves also suffered as their own share prices took a hammering on the Nasdaq. Google is one such example, as it saw its shares close out the quarter at a three-year low. It signed just four deals during the third quarter, down from 12 in the same three months of last year.

And even those tech firms whose share price has remained relatively strong are still keeping the M&A purse strings pulled tight. Here the report pointed to IBM, which bought three public companies during the first three quarters of 2007. It has acquired just one public company so far this year. And Cisco has announced just four acquisitions so far this year, down from 14 during the same period last year.

The analyst is predicting total M&A value in the tech industry will fall back to 2005 levels by the end of the year, confirming the good times are finally over even in Silicon Valley, ending four straight years of increasing M&A spending.

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