FORT LEE, N.J.--(BUSINESS WIRE)--July 17, 1996-- The value of merger and acquisition transactions involving North American Information Technology (IT) companies in the first half of 1996 totaled $97.1 billion compared to $46.6 billion in the first half of 1995, an increase of 108 percent, according to a report published by Broadview Associates, the leading M&A advisor to the global IT industry. The record breaking mid-year value was 17 percent above the full-year 1995 value of $83.1 billion.
The value of merger and acquisition transactions in the global IT industry in the first half of 1996 totaled $125.7 billion compared to $66.1 billion in the first half of 1995, an increase of 90 percent. The number of reported transactions announced on a global basis totaled 1,624, up from 1,383 in the first half of 1995.
"The vast increase in transaction value reflects both an increased volume of deals and a robust valuation for technology stocks," said Charlie Federman, chairman of the executive committee at Broadview Associates. "In North America, the number of IT industry mergers and acquisitions totaled 955 in the first half of 1996 compared to 739 deals in the first half of 1995, a gain of 29 percent. The full valuations public IT companies have enjoyed over the past year has increased both the seller's price expectations and the buyer's capacity to pay, leading to higher deal prices."
Internet-Related Opportunities, Industry Concentration and Market Entry Propel M&A Activity
The Internet spurred transactions in each sector of the IT industry as nimble companies rushed to capitalize on opportunities created by the growth of the Internet. "As the Internet frenzy escalated over the months, the M&A activity surrounding this platform has dramatically increased. Time to market is an essential determinant of success. M&A enabled telecommunications services companies to provide national-scope Internet access, internetworking hardware companies to become providers of the building blocks of the Internet infrastructure, and software companies to provide Internet connectivity software and WWW development tools and services. The free information distribution made possible by the Internet also made many digital content and media companies more attractive than ever to acquirers," said Federman.
Many of the 1996's most notable transactions, including Northrop Grumman Corp.'s $3.0 billion acquisition of Westinghouse Electronic Corp.'s Defense Electronics business and Pure Software's $954 million acquisition of Atria Software, were driven by concentration strategy.
A number of dramatic market entry moves played out in the first half as well. "Established companies seeking new sources of growth made bold entry moves into a variety of information technology sectors. Local telephone access provider MFS Communications' $2.0 billion acquisition of Internet access provider UUNet Technologies and CUC International's $1.1 billion acquisition of Davidson & Associates and $919 million acquisition of Sierra On-line are primary examples of a buyer using acquisition to enter a new market as a leader," said Federman.
Transaction Value Up Across Most Sectors -- Telecom Leads
The value of transactions in telecommunications services increased 198 percent, up to $50.6 billion in the first half of 1996 from $17 billion in 1995. Two deals made possible by relaxed telecommunication regulation, Bell Atlantic/NYNEX and SBC Communications/Pacific Telesis, accounted for over $38 billion of the first half's total. Deal count in the telecom sector increased 24% from 108 to 134, led by Internet-related buying -- Internet access companies have been acquiring presence in local markets to quickly build a regional or national network. While numerous, these deals are generally small averaging $6 million per transaction (excluding MFS/UUNet). "Internet access has increasingly become a commodity. We expect further consolidation in that arena, with only a handful of survivors," said Federman.
While deal count in the software sector was up 27% in the first half from 244 to 310, transaction value declined 48 percent to $8.8 billion from $16.9 billion in the first half of 1995. The large transaction value last year was attributed primarily to three "mega" deals: First Financial Management Corporation's $6.7 billion acquisition of First Data Corporation, IBM's $3.5 billion acquisition of Lotus Development Corporation and Computer Associates International's $1.7 billion acquisition of Legent Corporation -- contributing $11.9 billion or 70 percent of the software and services sector's total transaction value in the first half of 1995. In first half of 1996 by contrast, Computer Sciences Corporation's acquisition of Continuum at $1.5 billion was the only deal larger than $1 billion in the software and services sector.
The systems management software and programmer development tool segments of the software sector saw a tremendous surge of activity in the first half. Deals such as IBM's $731 million acquisition of Tivoli, Microsoft's $130 million acquisition of Vermeer, and Netscape's $120 million acquisition of Insoft were important "time to market" plays for these large buyers. Some of the highest valuation deals were in network security. "By hooking their networks into the Internet, corporations create an electronic entry point for hackers to steal data and vandalize systems. To protect themselves, corporations are seeking out sophisticated network security software. Many vendors are using M&A to position themselves as leaders in the increasingly important security market," said Federman. "Notable network security transactions included Security Dynamics Technologies Inc.'s $198 million acquisition of RSA Data Security, and Secure Computing Corporation's $193 million acquisition of Border Network Technology and $71.3 million acquisition of Enigma Logic."
Acquisitions of media and content services companies jumped 322 percent to $11.4 billion in the first half of 1996 from $2.7 billion in 1995 primarily due to acquisition of digital entertainment and education companies, digital information companies, and an increased rate of consolidation among traditional print media companies. "Thomson Corp.'s $3.4 billion acquisition of West Publishing gave the diversified publishing giant a strong presence in the important legal market. Also, financial investors continue to pursue vendors of business-related digital information -- notably Bain Capital's and Thomas Lee Co.'s $1 billion acquisition of TRW's Information Systems & Services business and Welsh, Carson, Anderson & Stowe's $275 million pending acquisition of Knight Ridder's Financial Information Division," said Federman.
Transaction value in the hardware sector rose 162 percent to $20.2 billion in the first half of 1996 compared to $7.7 billion in the same half of 1995. Transaction count in this sector rose from 120 to 156, a 30% increase. "This activity was largely due to Lockheed's $7 billion acquisition of Loral, the $3 billion Northrop Grumman acquisition of Westinghouse's Defense Electronics division, and Internet-related deal activity in the internetworking segment. Bay Network's acquisitions of Performance Technology and Penril Datacomm Networks' DSP modem business enabled Bay to compete with high-end dial-in service providers, an Internet-driven business. Transactions such as Cisco's $3.7 billion acquisition of Stratacom will enable the development of the high-end backbone for the Internet, and facilitate the expansion of Internet infrastructure" said Federman.
$6.0 billion worth of supporting products and services sector deals were announced in the first six months of 1996, up 161 percent from $2.3 billion in the same half of 1995. The increase was fueled partly by system integration companies seeking to establish a broader geographic presence in order to better support and service Fortune 500 companies. Also note, U.K.-based component distributor, Farnell Electronics completed a major concentration play in the first half with its $2.8 billion acquisition of Premier Industrial Corp.
Stock Is Increasingly The Transaction Currency of Choice
Strong public company valuations have driven the count of pure stock deals up to 44 percent of the first half total, compared to 43 percent in 1995. The combination of pure stock and combined stock and cash deals accounted for 69 percent of deals in the first half of 1996, up dramatically from 59 percent last year.
Broadview Associates
With 175 staff worldwide, Broadview Associates has completed over 80 M&A transactions in the past year. The company's strategic focus is to forge transactions that enable both industry leaders and emerging organizations to thrive in the global IT industry. Notable recent transactions include Secure Computing's acquisition of Border Network Technologies, IBM's acquisition of Data Sciences, U.S. Robotics' acquisition of Scorpio Communications, Bay Networks' acquisition of Performance Technology, GE Capital's acquisition of CompuNet and 3Com's acquisition of AXON Networks.
A complete copy of Broadview Associates' merger and acquisition report, which includes graphs and charts depicting merger and acquisition activity, is available upon request or via Broadview Associates' website at http://www.broadview.com. Broadview Associates also compiles and releases reports detailing merger and acquisition activity in Europe and the United Kingdom. A complete copy of Broadview Associates' US IT Index, a technology stock index that tracks 1,500 IT companies, is also available upon request. -0-
Broadview's Merger and Acquisition Report reflects data extracted from the company's Merger and Acquisition Database. The data is based on transactions that were announced in the first six months of 1994, 1995, and 1996, and includes the most current information available. The Report incorporates revised data to reflect final transaction valuations or the unexpected terminations of transactions, as well the reclassification of transactions in converging and expanding industry segments.
CONTACT: Janet Swift Hazel Kochocki
Broadview Associates The Weber Group
(201) 346-9000 (617) 520-7018
jswift@broadview.com hkochocki@webergroup.com
http://www.broadview.com
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