NEW YORK-Amid a broader trend of increasing mergers and decreasing initial public offerings among information technology, communications and media companies, carriers seized both options with gusto during the first six months of this year.
The number of individual IPOs in these sectors dropped 18 percent to 86 companies from 105 during the same period of 1997, according to “Technology M&A Report: First Half 1998,” by Broadview International L.L.C., Fort Lee, N.J.
However, initial public offerings in the telecommunications sector showed the greatest growth, doubling to 14, the report said.
At the same time, the value of telecommunications mergers and acquisitions “soared almost 589 percent” to $165.4 billion from $24 billion, “but the number of transactions was up only 23 percent” to 308 from 250.
More than half the total $292 billion volume of M&A activity in IT, communications and media industries came from telecommunications. Of the telecom piece, the SBC Communications Inc.-Ameritech Corp. and AT&T Corp.-Tele-Communications Inc. combinations comprised $109 billion.
“Telecom companies are supercharging their efforts to assemble, integrate and offer complete solutions encompassing voice, data and Internet services. That means wireline, wireless, cable and even satellite capabilities integrated and delivered seamlessly,” said Paul Deninger, chairman and chief executive officer of Broadview, an investment bank specializing in mergers and acquisitions in high-technology industries.
Even excluding telecommunications carrier deals from the total, the dollar volume of merger activity in the other high-tech sectors tracked by Broadview rose 35 percent to nearly $127 billion, compared with the first half of last year.
“There is no question that the IPO market has cooled dramatically since the red-hot peak of 1996,” Deninger said.
“While high-quality (initial public) offerings still are being well-received in the market, an increasing number of technology companies are choosing to pursue the M&A market rather than risk the perils of the public (capital) market.”
The number of publicly held sellers rose to 84 during the first half of 1998, up from 51 during the comparable period a year earlier. Public sellers in the telecommunications sector rose 333 percent, to 13 from 3, while public sellers in the software sector increased by 88 percent, to 30 from 16, the Broadview report said.
“In a crowded public market, many publicly traded companies are finding it advantageous to merge rather than go it alone, either because their stock price is depressed or they need to reach critical mass,” Deninger said.
“What’s more, despite market volatility, some companies in the IT, communications and media industries have had very strong stock performance, and they are looking to leverage this advantage by pursuing strategic mergers or acquisitions.”
Privately held high-technology companies chose mergers and acquisitions rather than going public by a ratio of 12: 1 during the first half of 1998, up from 8: 1 at year-end 1997 and 4: 1 at year-end 1996.
The hardware segment of high-tech posted the greatest decline in IPOs, which totaled 11 during this year’s first half, down from 37 during the same period of 1997. By contrast, the value of hardware company M&A transactions increased 11 percent worldwide, to $46.1 billion from $41.7 billion, while the number of such transactions increased 10 percent to 334 from 304.
“Four of the five largest deals in this [sector] were telecom-related,” the report said: Northern Telecom Ltd.’s $9.1 billion bid for Bay Networks Inc.; Tellabs Inc.’s pending purchase of Ciena Corp. for $6.7 billion; Alcatel’s $3.8 billion bid for DSC Communications Inc.; and Lucent Technologies Inc.’s purchase of Yurie Systems for $890 million.
In the supporting products and services sector, the largest transaction announced during the first six months of 1998 was Micron Technologies’ pending acquisition of Texas Instruments’ semiconductor memory business for $662 million.
However, Broadview characterized as flat the M&A market in this segment, “which posted a mere 5 percent increase in the number of deals,” to 186 from 177 in the first half of 1997. The value of deals rose 9 percent to $3.4 billion from $3 billion.
