There has been a flurry of major acquisitions in the technology sector in recent weeks, both in the UK and on the other side of the Atlantic. HP gazumped Dell to land storage firm 3PAR, while also bagging security companies Fortify and most recently ArcSight.

Intel, meanwhile, agreed to buy security giant McAfee, and bought Infineon’s wireless solutions business. Not to be outdone, IBM acquired both marketing software firm Unica and document and data capture specialist Datacap last month.

In the UK technology sector, this year has already beaten 2009 for takeovers, clocking up £2.9bn in deals compared with last year’s £1.1bn, according to the Financial Times.

But why are companies so keen to spend millions, and sometimes billions, on acquisitions, and why now?

Desire to acquire

Deepak Jain, senior vice president and global head of technology infrastructure services at IT services firm Wipro believes that the best time to acquire is, counter-intuitively, when you don’t need to.

“We spoke to a large financial institution that deals with mergers and acquisitions, and its view was that you should always acquire when you don’t need to,” he said. “That’s the time when you’ll pay the right price. If you’re desperate and have to push the deal through today, you’ll pay more.”

Part of the reason for the sudden glut of acquisitions could be that some organisations are suddenly finding themselves flushed with cash, following last year’s often precautionary belt-tightening.

For some organisations, acquisition is a publicly stated part of their strategy. This is certainly the case with HP, which has spent more than £5bn growing its software business in this way. According to Ian May, vice president of HP software and solutions, the software business currently earns about half of that figure per year, and the aim is to double that over the next five years, partly through further acquisitions.

So why do large organisations such as HP pursue this strategy?

“You acquire companies for three reasons,” May said. “You either want the customer base, the clever people, or the technology – or a combination of those. At the moment, there are a lot of acquisitions because people want the technology.

“Acquiring a firm for its technology is often much more cost effective than developing it in-house where the time to market would be too great and you may have missed the opportunity,” he added.

May argued that when technology was more proprietary, firms would be acquired for their customer base, as it was the only way to break into a new market since replacing a system with something entirely new was often very difficult. Today, organisations are seeking to fill the gaps in their portfolios.

Wipro’s Jain said that acquiring a company for its people, and specifically their skills, is also a valid strategy.

“We acquired cMango a few years back for its expertise in BMC software. It was the skills and knowledge base of their staff that interested us. I can build skills [in my staff], but it could take one to two years. If you want to serve your customers’ needs today, the best way is to acquire.”

Building the empire

The recent acquisitions made by major vendors such as HP, IBM and Intel also suggest that these suppliers are keen to become one-stop shops for their customers, with storage and security high on the agenda.

Amichai Shulman is CTO at Imperva, a data security firm. He explained that large infrastructure providers such as HP and IBM have realised that security needs to be integrated into their offering.

“We’re seeing companies such as HP, IBM and Intel acquiring and adding more and more security solutions into their portfolio. They understand that security is part of what makes IT tick,” he said.

However, Jain explained that it is not always necessary to acquire in order to build up your organisation’s offering.

“Look at Cisco,” he said. “The company found it better to create a new model, one of coalition rather than acquisition. Now it can offer additional services to acquire a larger customer share.”

Whatever the reason or method behind the acquisition, one area where IT leaders agree is that it greatly aids time to market.

“We have always found that our acquisitions have given us an advantage,” said Jain. “If we had tried to build the business on our own, it would have taken longer.”

Source: http://www.computing.co.uk/computing/analysis/2270048/why-companies-getting#ixzz10j4HTAhY