Which Tech Companies Will Be Acquired Next?

Pssst...got an enterprise tech company with some innovative technology that could fill a hole in a bigger company's product line? I'm pretty sure there's a potential buyer out there for you.

One deal after another
As if the high-profile deals of 2009 weren't enough, the tech M&A environment has caught fire in recent months, with Hewlett-Packard (NYSE: HPQ  ) , Dell, IBM, Cisco Systems, and Oracle all making it clear that they're willing to pay top dollar for smaller companies that can potentially give them a leg up against their equally hungry competitors. HP and Dell's manic bidding war for high-end storage specialist 3PAR might have gotten the most headlines, but 2010 has also seen:

  • HP's acquisition of security appliance vendor ArcSight.
  • IBM's buyouts of document management software developer Datacap, marketing software developer Unica, data warehousing appliance vendor Netezza, and risk management software firm OpenPages.
  • Oracle's acquisitions of drug development software firm Phase Forward and firewall appliance vendor Secerno.
  • Cisco's acquisitions of optical networking chip developer CoreOptics, video management software firm ExtendMedia, and Arch Rock, a developer of wireless sensor technology for "smart" utility grids.
  • Dell's buyouts of storage optimization software firm Ocarina Networks, systems management appliance maker KACE Networks, and data center management software firm Scalent.

2009 as a turning point
And far from winding down their efforts, it looks as if the IT giants are now getting more comfortable going after bigger fish. The 3PAR, ArcSight, and Netezza deals, all announced within the last 30 days, each had a price tag that easily topped $1 billion. Meanwhile, rumors are now afloat that IBM wants to make a bid for networking bigwig Brocade Communications Systems (Nasdaq: BRCD  ) , and that VMWare (NYSE: VMW  ) , which is still 80%-owned by EMC, is interested in snapping up Novell's Linux business. In addition, Oracle CEO Larry Ellison, who less than two years ago ran a software-only shop, has now said that he's open to buying chip companies of all things.

What's responsible for this buying binge? I think it's the result of 2009 marking a turning point for the corporate tech world. Between Oracle's acquisition of Sun Microsystems, HP's acquisition of 3Com, Dell's acquisition of Perot Systems, and Cisco's entry into the server market with its UCS line, the big boys made it clear that they were no longer content to limit their offerings to certain industry segments out of a fear of alienating partners and/or straying away from "core competencies." Instead, they wanted to respond to a maturing corporate IT landscape by turning into one-stop shops willing to offer hardware, software, and services for any industry segment even peripherally related to the ones it was already involved in. And if a competitive solution for one of these segments can't be developed in-house, well, that's what acquisitions are for.

Thus, we have HP getting into networking, Oracle going head-first into hardware, IBM involving itself in applications software, and much else besides. And as of right now, there's no shortage of IT businesses that one or more of the giants isn't involved in, but would like to be. Which means that plenty of additional deals should be on the horizon.

Future buyout targets
Which enterprise tech companies will get bought out next? I'd recommend keeping an eye on companies serving the following markets:

Storage and data warehousing: In the aftermath of the 3PAR and Netezza deals, it's pretty likely that some of their competitors will also find their way to the auction block. 3PAR rival Compellent Technology is already being talked up as a potential target. Teradata (NYSE: TDC  ) and its end-to-end data warehousing solutions could be a good match for an HP or an Oracle. And Isilon Systems, which has done an admirable job of holding its own against EMC and NetApp in the high-end network-attached storage space, could be a target for Dell or IBM.

WAN optimization hardware: The market for WAN optimization gear, which speeds up Internet access for a corporate network, has grown at a swift pace over the past several years; and as of right now, Cisco is the only one of the giants to have much of a presence in it. From a valuation standpoint, Blue Coat Systems is the most appealing name available. But if the 3PAR and Netezza deals are a sign that the giants are willing to pay top dollar for superior technology, then market leader Riverbed Technology (Nasdaq: RVBD  ) is likely to find a suitor.

Middleware: This software acts as the glue that allows disparate business software platforms to work together -- and usually comes with some pricey services contracts attached. If HP, Microsoft, or SAP decide that they want to strengthen their hand in the middleware space relative to market leaders IBM and Oracle, snapping up an independent vendor would make a lot of sense. TIBCO Systems (Nasdaq: TIBX  ) , which my colleague Anders Bylund has pounded the table a long time for, is a potential target, as is competitor Progress Software.

Security hardware: It wouldn't surprise me if the HP-ArcSight and Oracle-Secerno deals got the ball rolling on further consolidation in the security hardware space. Especially with surveys of chief information officers  consistently ranking security as a top budget priority. Firewall vendor Fortinet is a name to keep an eye on. As is Radware (Nasdaq: RDWR  ) , a maker of application-level security appliances, and Vasco Data Security International, a maker of user authentication hardware for corporate networks.

Those are just a handful of the companies that investors looking for the next 3PAR or Netezza might want to keep an eye on. Do you think another enterprise tech company is like to get bought out? Feel free to let us know in the comments section.

Fool contributor Eric Jhonsa has no position in any of the companies mentioned. Microsoft is a Motley Fool Inside Value recommendation. Vmware is a Motley Fool Rule Breakers choice. Teradata and VASCO Data Security International are Motley Fool Stock Advisor recommendations. The Fool has written calls (bull call spread) on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Microsoft, and Oracle. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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