The depression of the IT sector on the JSE was reflected in a 90% drop in IT merger and acquisition value in 2001, according to the latest Ernst & Young (E&Y) Mergers & Acquisitions book.
The 11th annual Mergers & Acquisitions book, launched in Sandton this morning, shows that there were 96 merger and acquisition deals in the IT sector last year, with a total value of R9.1 billion.
This compares with 124 deals worth R90.3 billion in 2000, and 123 deals at R19.8 billion in 1999.
The book`s editor, E&Y corporate finance partner Dave Thayser, says global merger and activity halved last year, and the average size of deals also fell dramatically.
The largest deal of 2000 was the $184 billion AOL/Timer Warner merger, while the largest of 2001 (which has yet to be settled) was the $20 billion HP/Compaq merger.
He attributes this in part to the burst of the IT bubble, a general economic slowdown, the 11 September US terrorist attacks, the collapse of Enron and K-Mart, a torpor in Japan, and stock market reaction to these conditions.
SA also experienced its own factors, with the Argentina collapse, Zimbabwe contagion, government policy shifts with regard to AIDS and telecoms, and corporate failures, including Regal, Unifer, Saambou, Siltek, and Health & Racquet.
"Even though IT continued to generate a substantial number of deals, the average was far lower than in previous years," Thayser says.
Although overall merger and acquisition transactions recorded last year amounted to R502.4 billion, representing a 35% increase from 2000`s R372.2 billion, the technology sector contributed only 1% of the value of transactions last year, compared to a quarter of the R372.2 billion of value of transactions in 2000.
The increasing stream of profit warnings from major IT players globally and locally is one of the reasons for the dramatic decline in IT merger and acquisition transaction values, he says.
He adds that the current share price performance of companies that have slid into relative insignificance from being the IT kings of yesterday is also putting technology companies off taking the merger and acquisition plunge.
"Many initially successful technology companies that listed have disappeared or, at best, are hanging on to the last few remaining cents of their share price."
Thayser says the current hold on IT merger and acquisition activity will continue until there is a significant revival in the key global economies.
While he says it seems unlikely that this turnaround will be achieved this year, he still sees the need for technology firms to acquire skills and products through acquisition in the long run.
"In the meanwhile, the industry will follow the HP/Compaq transaction with great interest to see whether it provides pointers to a future direction for the industry."
Referring to the current hostile takeover bid for Idion Technology Holdings, Thayser says contested or hostile bids have become an increasing feature of South African merger and acquisition deals since Nedcor`s hostile bid for Stanbic in 2000, and this is likely to continue.
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