he'll have spent in excess of US$16.7 billion over the last two years to back up that theory.
Oracle's hostile takeover of PeopleSoft forced executives at other companies to think long and hard about their futures as well, and sparked a wave of big-ticket mergers. Security software maker Symantec topped them all when it spent US$10.5 billion in an all-stock deal to acquire storage software maker Veritas.
Symantec CEO John Thompson argued that even his fast-growing company--which has been acquiring small businesses at a steady clip for years--had to think big if it was going to thrive years from now.
Ultimately, the deal may indeed prove to be a lot more strategic than financial. Most security experts figure it's only a matter of time before Microsoft competes head-on with Symantec for antivirus software sales. It's already selling antivirus software for corporations through its Sybari subsidiary. Thompson, his fans believe, was wise to use the dividend of today's sales to get his company into a new market.
Big telecoms, too
But big-ticket merger mania has hardly been
limited to software companies.
The telecommunications industry, which faces additional regulatory pressures and direct competitive threats from the cable industry, has been a hotbed of large deals. Sprint's recently completed merger with Nextel Communications, SBC Communications' pending merger with AT&T and Verizon Communications' pending merger with MCI Communications each reached into the billions of dollars.
But are companies that interested in selling themselves?
When it comes to private, venture-backed companies, the answer over the past 12 to 18 months has leaned toward "heck, yes." Even a company like software maker VMware, which was considered a hot prospect for an initial public offering, took the easy money and sold to storage giant EMC for US$625 million in cash last year. Another strong Wall Street candidate, Crystal Decisions, rescinded its IPO in 2003 and was acquired by rival Business Objects in a US$1.2 billion deal.
"We're seeing private companies say that they could go public, but an M&A transaction would be just fine," said Cole Bader, a partner in the mergers-and-acquisitions group at Thomas Weisel Partners.
Several big factors are weighing on that. Continued stock market uncertainty makes an IPO a high-risk move for all but a few companies like Google and Salesforce.com. Increasingly, investors are happy to cash out in an acquisition. They may not make as much money as they would in an IPO, but an acquisition is a lot less risky. Also, venture capitalists are under more pressure to show some returns for their own investors, and a merger is an easy way to do it.
And big companies, most notably in security, have a habit of gobbling up start-ups with hot technology that otherwise would have taken years to develop.
"There's a joke in our market that every successful IPO is a failed M&A trade," Bader said.
Venture capitalists, such as Tim Draper, of Draper Fisher Jurvetson, note that some of the start-ups his firm has funded, such as Skype, which created a peer-to-peer network for voice over Internet Protocol (VoIP) communications, have opened new markets that large corporations want to get into. And after years of playing it safe, executives at many big companies figure they need to go the merger route to land important new technologies.
"After the boom and the bust, people froze and stopped investing," Draper said. "Large corporations were also working with frozen R&D (research and development) budgets. Now the large corporations are realizing that they need to evolve."
Industry observers are expecting the large buyouts to continue to rise, especially given the inquisitiveness of networking giant Cisco Systems, Microsoft, Symantec, and, of course, Oracle.
"Maturing companies are buying companies like Skype," Thomson Financial's Peterson said. "Microsoft is on the prowl; Cisco is on the prowl. You have these 800-pound gorillas scouring the territory."
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