EMC Cash Bid Sparks Tech M&A Talk

Shopping for tech companies in the data storage aisle? Bring lots of cash.

Recent deals like EMC's (EMC) takeover bid for Data Domain (DDUP) show the power of cash and the willingness to pay premiums of 40% or more.

Value is never easy to determine in a turbulent market, but it certainly helps to have competing offers driving up the price. And to the cash-rich go the spoils.

EMC's $1.8 billion all-cash bid for Data Domain surpassed NetApp's (NTAP) prior offer of $1.5 billion in cash and stock by 20%. The bid also represents a 67% premium over Data Domain's closing stock price May 20, just prior to the NetApp takeover offer.

Sound rich? Recall that Oracle's (ORCL) deal for Sun Microsystems (JAVA) commanded an all-cash, $9.50 a share that represented a 42% premium to Sun's stock price after IBM's(IBM) deal discussions with Sun collapsed.

With sales slumping, some big tech shops are willing to part with some cash to lock up more of the market.

"Consolidation is inevitable because organic growth is going to be hard to come by," says Collins Stewart analyst Ashok Kumar.

Given all the cash on the books and so little debt among tech outfits, a lot of companies aren't feeling the pinch of a tight credit market and are therefore more able to spend on acquisitions.

For network storage giant EMC, which competes directly with data storage rival NetApps, the move for Data Domain not only plugs a hole in its product offering, it prevents EMC from falling behind in storage technology.