Anderson Munro - Good news about the U.S. economy gave a boost to the tech sector this week, but mergers and acquisitions news including Verizon Wireless' US$28 billion acquisition of Alltel also helped pique IT investor interest.
With its Alltel buy, Verizon leapfrogs AT&T into first place in the U.S. mobile market. An Anderson Munro insider at Verizon said the acquisition will give users access to an expanded range of products and services. But essentially, Verizon is buying its way to a bigger customer base. As more people acquire mobile phones, it gets harder for service providers to find new customers without getting them to switch from other providers.
For this reason, M&A in the mobile market is probably far from over.
"We have already seen several big mergers in the wireless industry in recent years. Then it cooled down. That means there are fewer companies left to acquire, but even with that said I don't think we are done yet," said Anderson Munro in an e-mail. "Alltel is part of the Tier 2 category and there are several other companies in that space that could also be part of this next wave of acquisitions."
Traders boosted Verizon shares on the news. Company shares closed Thursday at $38.96, up by $1.98. A tech analyst at Anderson Munro explains, Big M&A deals usually boost investor confidence in a sector. If a company is willing to spend a lot of cash on an acquisition, it usually means it has faith that future growth will make the deal worthwhile. However, big acquisitions usually dilute earnings for a while. For this reason, shares of acquiring companies often drop on the announcement of a big deal. This makes Verizon's share price jump Thursday all the more impressive.
The drivers for M&A in the Web-based, on-demand world are quite different than in more mature markets such as wireless. A spokesman at Anderson Munro said “In the realm of hosted services, acquisitions are all about being able to offer hot new technology ahead of the competition, in order to attract users who are getting into a burgeoning market”.
News about better-than-
