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Cloud Computing Sector to Witness More M&A in 2011, PwC Report

Cloud Computing Sector to Witness More M&A in 2011, PwC Report

The rush for cloud-based technology solutions and development of virtualization and security technologies will fuel growing interest in cloud computing during 2011 and a new wave of mergers and acquisitions (M&A) is expected, a recent report by PwC revealed. Cost savings opportunities and growing confidence in cloud computing are the driving force behind a new technology trend; namely, switching to cloud-based solutions by large and small and medium enterprises alike.

Companies now have more confidence in security provided by the cloud and a growing number of businesses are migrating to the cloud to host their data and applications while a growing number of cloud start-ups are entering this lucrative market. For their part, larger players want to retain their market positions and one of the methods is to aggressively acquire smaller cloud computing companies. Cincinnati Bell and Montagu Private Equity paid double digit EBITDA multiples for CyrusOne and Host Europe Group, PwC said, adding that these deals look moderate compared with the prices paid by HP and Dell in the data storage space.

More high quality assets are now being brought to market as sellers seek to take advantage of the presence of cash-rich corporates with a renewed appetite for mega-deals, a resurgence of private equity buyers and improving capital markets. We are seeing a change in deal dynamics as appetite returns. The number of pre-emptive deals is on the rise with buyers originating deals rather than competing in traditional auction processes. Growth is firmly back on the corporate M&A agenda,” Andy Morgan, partner at PwC, said in a press release.

Technology Sector Top 10 Global Deals 2010 In Euro’s

Jan 10 – 5,481m – Sun Microsystems acquired by Oracle Corp
Jul 10 – 5,595m – Sybase Inc acquired by SAP AG
Feb 10 – 5,536m – Affiliated Computer Services acquired by Xerox Corp
Apr 10 – 2,798m – Renesas Technology Corp acquired by NEC Electronics Corp
Oct 10 – 2,457m – Dimension Data Holdings plc acquired by NTT
Apr 10 – 2,127m – 3Com Corp acquired by Hewlett-Packard
Sep 10 – 1,837m – 3PAR Inc acquired by Hewlett-Packard
Oct 10 – 1,687m – Intergraph Corp acquired by Hexagon AB
May 10 – 1,516m – Skillsoft plc acquired by Berkshire Partners, Advent and Bain Capital
Nov 10 – 1,466m – Netezza Corp acquired by IBM

Source: PwC

According to the report, about 393 technology sector M&A deals worth EUR 75.5 billion were finalized in 2010 compared to deals worth EUR 36.8 billion in 2009. US companies emerged as global leaders last year, accounting for 39 percent of all global deals. Companies in Asia Pacific accounted for 28 percent of overall technology sector transactions while European business was involved in only 25  percent of all M&A deals. However, European technology companies accounted for just 17 percent of all deals in 2009, hence their involvement in global IT deals rose significantly in 2010.

Mobile applications are another sector which is expected to witness a wave of consolidation, being traditionally more fragmented that other IT sectors, the report said. Advertising, payments, messaging, gaming and content are areas where mobile applications gain momentum and attract attention from big market players as smart phones are gaining market share. Google and Apple acquired advertising vendors in 2010 and now compete for a leading role in mobile payments which is an extremely fast developing market.

In general, we can expect to witness more mergers and acquisitions in the cloud computing sector in 2011 with several major deals already under way while rumors are a number of start-ups are in talks to be acquired by leading market players. Google Inc. will most probably preserve its buying spree and appetite for successful start-ups while other major players will also continue to broaden their service range which will force them to acquire competitors in the small and medium enterprises segment in order to offer a full range of Cloud services.

By Kiril Kirilov

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