A rebound, but still short

Contact: Brenon Daly

Chordiant Software’s $161.5m sale to Pegasystems, which was announced on Monday and is expected to close next quarter, marks the 10th time this year that a company listed on the NYSE or Nasdaq has been set up to be erased from one of the exchanges. Granted, not all of the announced deals will get closed (Upek’s unsolicited bid for publicly traded rival AuthenTec comes to mind), and not all of the bids will play out smoothly (the hedge fund agitation against Novell, for instance), but it does indicate a rebound in activity from this time last year.

With the recession crippling the economy in early 2009, stock prices for many tech companies sank to their lowest level in more than a half-decade. (The Nasdaq bottomed out in early March 2009 at just under 1,300. The index closed Monday at 2,362 – some 80% higher than it was a little over a year ago.) In the first few months of 2009, few companies were in the mood to talk M&A. Buyers were worried about their own outlook, and figured they had enough risk in their own operations without compounding that with a big buy. On the other side of the table, few sellers were willing to part with their businesses at what they considered bargain prices. Consequently, deal flow dried up.

What’s interesting to note is that although the equity market has rebounded so far in 2010, we’re basically seeing the same pace of deals. There were 10 acquisitions of US-listed public companies in the first quarter of 2009 – the same number that we’ve seen so far this year. Yet spending on the deals has surged more than four-fold. Clearly, that’s an indication that buyers are more confident about the outlook for business and are willing to place larger bets on acquisitions. And while that pickup in spending has been welcome, we need to keep in mind that it’s still chump change compared to when the M&A market was more vibrant. Spending on public company deals announced so far this year ($7.5bn) is less than one-quarter the level that it was in both 2008 and 2007.

First-quarter Nasdaq/NYSE M&A activity

Period Deal volume Deal value Select transactions
Q1 2010 10 $7.5bn Elliott Associates-Novell; Pegasystems-Chordiant
Q1 2009 10 $1.8bn Autonomy Corp-Interwoven; Exar-Hifn
Q1 2008 19 $34.3bn Oracle-BEA Systems; BMC-BladeLogic
Q1 2007 21 $33.3bn Oracle-Hyperion; Cisco-WebEx

Source: The 451 M&A KnowledgeBase