Credit Woes Whack Tech M&A

SAN FRANCISCO -- The bloodletting in the credit markets may soon start to spill into the tech sector.

The widening credit crisis is exposing the vulnerability of tech companies that have borrowed avidly in recent years as hedge funds, pension funds and other large investors have loaded their portfolios with corporate debt, holding down interest rates.

The tighter link to the credit markets could choke the growth of tech companies that have made acquisitions a major plank of their expansion plans. In recent years, IT services firms as well as makers of software, semiconductors and telecom gear have used cash instead of stock to make acquisitions.

The reliance on debt is showing up on their balance sheets at a time when skittish investors are draining the credit markets of liquidity, making it costlier to refinance existing debt or take on new debt.

Software maker Oracle (ORCL Quote), for instance, spent nearly $20 billion in cash on acquisitions over the last three years.

In that time, the company's debt as a proportion of total capital, a common measure of a company's debt burden, rose from 2% to 31% according to a study by the Center for Financial Research and Analysis.

One of the companies with the most pronounced balance sheet effect is Affiliated Computer Services (ACS Quote), which has used over $1 billion in cash to make acquisitions over the past three years.