The number of mergers and acquisitions involving technology firms jumped 25% in 1997 over 1996, according to a report announced today by Broadview Associates.
Broadview also found that more private companies are considering mergers rather than going public as a way to raise capital and gain technology because of increased competition in the stock market.
New York-based Broadview, which reports annually on merger and acquisition trends in information technology, telecommunications and media, said 4,040 mergers and acquisitions took place last year versus 3,224 such transactions in 1996.
In North America, the number of mergers and acquisitions rose 31 percent, from 1,962 in 1996 to 2,577 in 1997.
The pace of mergers may be accelerating. PaineWebber Inc. in New York, which recently released its own study, said it expects 1998 will be a strong year for mergers as companies look for ways to generate revenue growth and spend money gained over six years of uninterrupted profit expansion for U.S. businesses.
Broadview said that many private companies, in particular, have found that going public isn't rewarding. Companies that have made public offerings in recent years are competing for analyst attention and don't have adequate coverage when their performance lags. "More than half of all publicly traded tech companies today went public in the last four years. Yet nearly a quarter of them have no research coverage. These days, Wall Street has little patience," said Paul Deninger, Broadview CEO and chairman, in a statement.
But not everyone sees a compelling logic to the rash of merger activity. "If you look at the history of mergers and acquisitions in the U.S., you see that it comes and goes in waves and cycles. And I think what it has to do with is fad and delusion more than any kind of soundly rooted fundamentals of economics and technology," said James Brock, a professor of economics at Miami University in Oxford, Ohio. Brock has written extensively on this issue, including a book entitled "Dangerous Pursuits: Mergers & Acquisitions in the Age of Wall Street," co-written with Walter Adams and published by Pantheon Books in 1989.
In the 1960s, for instance, a drive developed to create conglomerates. In the 1980s, a wave of downsizing occurred as companies sold off divisions to focus on their core businesses.
"So now we go back to big is better ... Step back and ask yourself, 'What is really going on?' " Brock asked.
Brock said the big winners in merger and acquisition phases are people and banks -- the attorneys and accountants who help put the companies together.