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Tech M&A, Deutsche Bank 10-15-2010

Tech M&A, Deutsche Bank 10-15-2010

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Published by Bill Tai
Deutsche Bank Note on Technology M&A trends 3Q 2010. Very informative!
Deutsche Bank Note on Technology M&A trends 3Q 2010. Very informative!

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Published by: Bill Tai on Oct 18, 2010
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North America
United States
 TMT
Data Networking
 
14 October 2010
TechnologyM&A
Looking for Dance Partners
Brian Modoff
Research Analyst(+1) 415 617-4237brian.modoff@db.com
Deutsche Bank Securities Inc.All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from localexchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. DeutscheBank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firmmay have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singlefactor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P) 007/05/2010
FITT Research
Fundamental, Industry, Thematic,Thought Leading
Deutsche Bank’s Research ProductCommittee has deemed this work F.I.T.T.for investors seeking differentiated ideas.Here our technology analysts havecollaborated to produce an in-depth lookat the changing industry landscape whichblurs the line between hardware,software and service to gauge the driversfor an acceleration in Mergers andAcquisition activity. We then identifylikely pairings.
Fundamental: Surging demand in dataIndustry: The network as a computerThematic: Clouds, datacenters,virtualization and everything as a serviceThought-Leading: Buy vs. build; time tomarket vs. time to integrateThe “Big Eleven” and the M&A basketBuyers are trading at a discount, targetsat a premium, but both have upside
   C  o  m  p  a  n  y
   G   l  o   b  a   l   M  a  r   k  e   t  s   R  e  s  e  a  r  c   h
 
 
 
 
North America
United States
 TMT
Data Networking
 
14 October 2010
Technology M&A
Looking for Dance Partners
Brian Modoff
Research Analyst(+1) 415 617-4237brian.modoff@db.com
 
Jonathan Goldberg, CFA
Research Analyst(+1) 415 617-4259jonathan.goldberg@db.com
Tom Ernst Jr
Research Analyst(+1) 800 592-0290thomas.ernst@db.com
Todd Raker
Research Analyst(+1) 203 863-2246todd.raker@db.com
Sherri Scribner
Research Analyst(+1) 212 250-5734sherri.scribner@db.com
Brian Thackray
Research Analyst(+1) 212 250-0332brian.thackray@db.com
Chris Whitmore, CFA
Research Analyst(+1) 415 617-3213chris.whitmore@db.com
Fundamental, Industry, Thematic, Thought Leading
Deutsche Bank’s Research Product Committee has deemed this work F.I.T.T. forinvestors seeking differentiated ideas. Here our technology analysts havecollaborated to produce an in-depth look at the changing industry landscape whichblurs the line between hardware, software and service to gauge the drivers for anacceleration in Mergers and Acquisition activity. We then identify likely pairings.Deutsche Bank Securities Inc.All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from localexchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. DeutscheBank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firmmay have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singlefactor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P) 007/05/2010
FITT Research
Research TeamData Networking/Wireless EquipmentBrian Modoff
415 617 4237brian.modoff@db.com
Jonathan Goldberg
415 617 4259jonathan.goldberg@db.com
Vijay Bhagavath
415 617 3324vijay.bhagavath@db.com
Application SoftwareThomas Ernst
800 592 0290thomas.ernst@db.com
Nandan Amladi
212 250 4570nandan.amladi@db.com
Jobin Mathew
212 250 7114Jobin.mathew@db.com
IT HardwareChris Whitmore
415 617 3213chris.whitmore@db.com
Joakim Mahlberg
415 617 3348joakim.mahlberg@db.com
Infrastructure SoftwareTodd Raker
203 863 2246todd.raker@db.com
Brian Thackray
212 250 0332brian.thackray@db.com
Imtiaz Koujalgi
203 863 2362imtiaz.koujalgi@db.com
Electronics Supply ChainSherry Scribner
212 250 5734sherri.scribner@db.com
Kevin Labuz
212 250 2463kevin.labuz@db.com
F
undamental: Surging demand in data
Data growth is surging, taxing the ability of service providers to keep up theircapex in infrastructure. The advent of Web 2.0 for the consumer (socialnetworking) and the enterprise (XaaS) are forcing changes in spending patternsand pushing companies to consolidate.
I
ndustry: The network as a computer
We see discrete IT segments merging together as networking trends change andconsolidation shrinks the landscape. Increasingly, companies are looking toexpand beyond their traditional space. Oracle has entered the hardware marketand Cisco now sells servers. The changing nature of data usage has promptedcompanies to bundle more into their offerings, capturing more value and buildingdefensible barriers to entry.
T
hematic: Clouds, datacenters, virtualization and everything as a service
 Virtualization, in its many versions, has enabled the coming transition to datacentercomputing or ‘cloud computing’. We think this will eventually prompt the majorsolution vendors to move from selling equipment or licenses to offering servicesin a more flexible and dynamic manner.
T
hought-Leading: Buy vs. build; time to market vs. time to integrate
Academic studies show that most M&A transactions fail to meet their value-creation targets. The rapidly shifting technology landscape pressures companiesto acquire and rapidly bring new bundled solutions to market. Often overlooked isthe ability to integrate those acquisitions into corporate structures, technologyroadmaps and channel agreements. We believe integration may prove to be moreimportant than acquisition target.
The “Big Eleven” and the M&A basket
We think Apple, Cisco, Dell, EMC, Google, HP, IBM, Intel, Microsoft, Oracle andQualcomm are the Big Eleven, with the size and cash balance to make majoracquisitions. With one exception, we think none of these will be targets in theirown right. In this report, we walk through which companies could emerge as theBig Eleven’s potential targets as they seek to plug gaps in their strategic plans.
Buyers are trading at a discount, targets at a premium, but both have upside
We analyze accretion/dilution impacts of deals on the acquirer’s share price. Thelikely buyers already reflect a discount which we think overstates the dilutiveimpact of many deals. Targets are trading at a premium to peer group averages,but are still below recent precedent transactions. Investing in anticipation of anacquisition is risky, but we believe many stocks still have upside potential.

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