Tech M&A Blip Belies a Long Term Problem

I came across this story about tech M&A with a pointer to data from Thomson Reuters about tech industry M&A activity. As I look at the numbers, and the graphs that fall out, there's a very interesting pattern that brings into question the uptick in activity that seems to be happening.

The headline of the BusinessWeek story was "Tech M&A Hits 20-Month High." On the surface, that is true, as you can see from the Thomson Reuters data.

But that is strictly a surface analysis. I pulled the data down into a spreadsheet and did some graphs and what-jumps-off-the-page analysis. The first thing that jumps out at me is that between the Dell acquisition of Perot Systems for $3.9 billion, Adobe buying Omniture for $1.8 billion, and Xerox announcing it would pay $6.4 billion for ACS, three deals out of 365 alone account for half of the $27.2 billion total. Half.

Here's the data from Thomson:

I've inserted a trend line to make the movement more apparently. And notice that while the total dollars seem to be on a bit of an upturn, if you take the outliers out of the equation, it's not as encouraging. Now here's a second graph showing the number of deals, along with trend lines:

Notice that the number of deals continues to shrink in a steady trend. That, I think, is the real figure to consider. It's clear that on the whole, we're not seeing the M&A market heating up, but actually continuing to cool off, except bigger deals are coming back into style. That means fewer opportunities for investors in younger tech companies to see some liquidity, as the IPO market isn't back.

Image via stock.xchng user tome213, site standard license.