Tech Acquisitions in the Air

Over the last week, we have seen developments on the merger front that are interesting both from an individual standpoint and as a commentary on the view of companies as a whole. Last week, Adobe (ADBE) bid $21.5 per share for Omniture (OMTR), and today Dell (DELL) announced an acquisition of Perot Systems (PER) for $30 per share. Both of these bids were in cash.

From a market standpoint, it is a good sign that companies are out there making acquisitions again. It shows they are getting more confident about their prospects going forward. Also, the fact that these transactions were done in cash shows confidence by both Adobe and Dell in their share valuation. If they had poor expectations going forward, they probably would have thought more about paying with stock.

Of course, waiting until your outlook brightens has a cost. Omniture is trading below $10 this year, so Adobe waited until it almost doubled in price to put in a bid. Perot Systems traded below $11 in March, so now Dell is paying almost triple that. If the acquirers would have made these bids in the first quarter, it seems like they could have gotten them for less money. In their defense, this is not an easy call to make.

In terms of company-specific points on these deals, I think the Dell acquisition really should be noted. The whole goal of Dell was to be the most efficient box maker for many years. However, this has become a much harder position for it to maintain. It has been hurt on one side from Apple, who has gained market share with its combination of slick hardware, multi media winners, and solid operating systems.

Dell also faces tough competition in the corporate market from Hewlett-Packard, which has integrated its Compaq acquisition from years ago, and has a large consulting wing to go along with its hardware. Buying Perot appears to be somewhat of an admission by Dell that just making cheap boxes with the lowest cost basis in the industry may not be a winning strategy.

As far as the Adobe/Omniture linkage, I think most people probably have never heard of Omniture. However, they are in an area of huge importance to online firms. They help track information for websites on their customers’ behavior, and on the performance of the money these companies spend for online ads.

With greater percentages of advertising budgets going online, these companies need to ensure they are spending this money wisely. Omniture has a product that does this in great detail. In my opinion, Adobe is smart to stake out its position in this space because it should continue to grow in importance down the road. But this is an expensive acquisition for ADBE from a financial perspective. Omniture actually lost money in the second quarter and booked only about $87 million in revenue. It is a way, however, for Adobe to refill its pipeline of products (much like a large drug company buying a biotech firm).

One other note — Omniture has settled above the $21.5 bid price from Adobe. This means there are people who think Adobe will raise its bid, or that another player will come forward and make a higher bid for the company.