Remarkable Year for Tech M&A

NEW YORK (TheStreet) -- This year is shaping up to be the biggest bust for tech mergers in recent history.

Contrary to all the noise about big deals in tech, M&A activities haven't just slowed, they're worth a fraction of what they were a few years ago. At the end of the third quarter, total tech deals this year reached $92 billion in value, a 74% drop from the same period in 2007, according to research firm The 451 Group.

The downshift isn't really all that surprising given how closely it follows the economy's two-year slide. But recent "merger Monday" headlines like Cisco's (CSCO Quote) $3.2 billion takeover of Tandberg, Silver Lake's $2 billion offer for eBay's (EBAY Quote) Skype and Adobe's (ADBE Quote) $1.8 billion shocker for Omniture (OMTR Quote) show there's still some action in M&A.

But the merger climate has changed considerably.

Tech M&A Takes a Plunge

For one, there are fewer shoppers in the market. Private-equity shops and buyout firms lack the easy-term credit to finance takeovers. And many big tech shops, which have socked away piles of cash overseas, would face taxes if the money were brought stateside for acquisitions.

Fear, however, is perhaps the bigger factor, says The 451 Group analyst Brenon Daly in a recent report titled: A new normal for tech M&A.

"The main reason for the decline is that tech buyers simply don't have the same appetite for risk that they once did," Daly wrote.

And while fear is a big guiding principle on one side, there's also some panic on the other side to help offset the inertia.

Sun Micro's (JAVA Quote) rapidly deteriorating business forced a move and later frightened IBM (IBM Quote) away. But serial acquirer Oracle (ORCL Quote) threw caution aside and swept in with its own $5.6 billion offer for Sun.

Cisco's acquisition of Norway video-conferencing shop Tandberg is more typical of the tech M&A trend of late - the old-school strategy of big players eliminating smaller rivals.