Where Does M&A Opportunity Lie in 2011?

The global economy continues to face uncertainty, but despite this, many technology companies have cash on hand in the tens of billions of dollars and are opting to spend it on mergers and acquisitions. In a new GigaOM Pro report, I examine the tech M&A landscape in 2011, using data provided by TheStreet.

Five large-cap, tech-rich companies are particularly likely to engage in M&A this year: IBM, Oracle, Microsoft, Cisco and Hewlett-Packard. Here are a few thoughts on how each of these companies M&A strategies might play out:

IBM

IBM has completed 17 acquisitions since the start of 2010, including its purchase of Netezza for nearly $1.7 billion, a 33 percent premium to the market price.

IBMs ambitions to expand into mobile software and services could require the company to improve its storage and delivery solutions. Publicly traded storage and data management companies like NetApp and EMC could be interesting targets, although NetApps recent market cap of $20 billion would be easier to integrate than the larger EMC, whose market cap is above $57 billion.

Oracle

Since the beginning of 2010, Oracle has completed 10 acquisitions in software subindustries. Most notably, it closed its $7.4 billion purchase of Sun Microsystems in January of 2010.

Cloud technology will be Oracles standard growth venue going forward. As such, it could be a key area of the companys M&A activity this year. Oracle is likely to make plays involving cloud-computing technologies such as NoSQL and Hadoop. It might also potentially targe! t Terrac otta, which IBM may also be eyeing.

Microsoft

Though its an exceptionally well-run company, and despite its recent $8.5 billion purchase of Skype, Microsoft is in dire need of an innovative spark to attract equity investors. Its unlikely to expand through its bread-and-butter operating system or software units, but Microsoft still has some promising growth areas.

For Microsoft, mobile presents especially fertile soil. While Windows Phone 7 has earned mixed reviews, its biggest barrier to gaining widespread adoption is the reluctance of developers to write apps for the platform. Buying a mobile phone manufacturer could help Microsoft produce enough devices to lure developers to Windows Phone 7, and speculation has begun to mount that Microsoft might buy a company like Nokia or Research In Motion.That Microsoft opted in February for a partnership rather than a merger with Nokia suggests that it remains cautious about large-scale transactions.

Cisco

Cloud software gives Cisco the opportunity to expand its revenue streams by selling a full-service cloud stack not just servers but virtualization and management software as well.

EMC and VMware, which is majority-owned by EMC, would fit this bill. But Ciscos 23 percent operating profit margin in 2010 is substantially higher than those of EMC and VMware (16 percent and 15 percent, respectively). Both deals would also tax Ciscos $40 billion cash stockpile, and a severe discrepancy between valuations (14 times earnings for Cisco versus 31 for EMC and 100 for VMware) would make a stock transaction problematic.

Hewlett-Packard

In mobile, HP could differentiate its platform with compelling services, but first it needs to turn webOS into a competitive mobile OS. An important plank in that strategy is a mobile ad network, which would make startups like WHERE, Jumptap and Millennial Media targets for HP as well as others, such as! Microso ft.

HP may also be hungering for a bigger role in the cloud-computing story. Appirio whose mandate is to help enterprises accelerate their adoption of public cloud applications and platforms would bolster HPs cloud services portfolio and counteract IBMs purchase of Cast Iron Systems and Dells acquisition of Boomi. Other cloud-technology buys might include Opscode, rPath and Puppet Labs, which help companies automate IT infrastructures.

The field of mergers and acquisitions isnt propelled simply by supply and demand, and in 2011, there are a number of strategic factors that could drive M&A activity. To read about those, as well as find more on each of the five companies potential strategies, see the full report at GigaOM Pro (subscription required).

Image courtesy of flickr user stevendepolo.

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