What bear market?

Contact: Brenon Daly

With one month still remaining in the second quarter, we can’t help but notice that M&A spending is running much higher than it was in the first three months of the year. The total bill for tech deals in April and May hit $41bn, which is one-third higher than the $31bn we tallied for the entire first quarter. If spending continues at this pace in June, Q2 will register the highest quarterly spending total for tech M&A since the Credit Crisis.

The recent surge of spending is largely being driven by the return of the big deals. Indeed, the number of Q2 transactions is tracking to a notably lower number than the 845 deals that we saw in Q1. (In the first two months of Q2, we tallied some 500 transactions, implying about 750 for the full quarter.) But recent deals have been significant, with three of the four largest transactions for all of 2010 having been announced in April and May. Fully 10 of the 17 deals valued at $1bn or more that have been announced so far this year have come in the past two months.

Further, it’s been big-name tech buyers that have figured into the shopping spree over the past two months. SAP, IBM, Hewlett-Packard and Symantec have all announced a 10-digit transaction since the beginning of April. We would hasten to add that the companies are doing these multibillion-dollar deals despite the fact that their stocks have taken a pounding over the past two months. Shares of SAP, HP and Symantec are all down about 13% in the period. (Big Blue has shed 4%.)

The declines in the shares of three of the acquisitive tech giants are actually steeper than the 8% slide in the Nasdaq since April 1. Given the recent bear market, we would have expected M&A to tail off rather than accelerate. Similarly, we would have expected deal activity in Q1, when the Nasdaq rose 6%, to be higher than Q2, when it was down an even larger percentage. But apparently, the long-standing correlation between the stock market and M&A activity has been snapped. At least it has been for now.

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