Merger and acquisition (M&A) activity returned to the software industry with a vengeance at the end of 2004 and in early 2005, with announcements of several notable transactions, says Standard & Poor’s Equity Research in a semiannual study of the industry. The report, the Computers: Software Industry Survey, is published twice yearly by Standard & Poor’s, a leading provider of independent investment research, ratings and indices.
According to the survey, one of the primary catalysts for the pick up in M&A activity in late 2004 was the resolution of the Oracle/PeopleSoft takeover battle. “Throughout the ordeal, Oracle overcame a number of hurdles, including a battle between the respective companies’ CEOs and a decision by the U.S. Justice Department that an Oracle/PeopleSoft combination would violate antitrust regulations,” said Jonathan Rudy, Software Analyst with Standard & Poor’s Equity Research Services. In September 2004 a federal judge ruled in favor of Oracle, and the Justice Department subsequently said it would not appeal the ruling.
“The enterprise software industry is also ripe for consolidation,” said Rudy. “Several factors had been keeping a lid on deal flow, including operational costs among software companies and investors’ broader concerns over accounting issues. However, intense pricing pressure as well as wide-scale decisions by large corporate clients to reduce the number of software vendors they deal with is driving the pace of consolidation, something that S&P believes will continue well into 2005 and beyond.”