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Tech Hitting the M&A Trail

(Updated to reflect Cisco's bid for Starent)

Cisco's (CSCO) $2.9 billion deal for Starent Tuesday is the latest example of the tech sector's cautious return to the M&A trail.

After weathering the recession, tech companies like Cisco, Dell (DELL), Adobe (ADBE) and IBM (IBM) are again hunting strategic opportunities. There were 740 deals in the third quarter, according to analyst firm The451 Group, slightly down on the prior quarter's 767 acquisitions, but higher than the 733 deals clinched in the same period last year.

Storage specialists Brocade (BRCD) and NetApp (NTAP) have attracted most of the recent M&A chatter, although at least one analyst thinks that data security could also be fertile ground for acquisitions.

"I would look for Hewlett-Packard (HPQ) to be a buyer in security," said Brenon Daly, lead M&A analyst at The451Group, explaining that the computer maker is mirroring arch-rival IBM.

H-P, for example, bought EDS to compete with IBM in services, and threw down $4.5 billion on Mercury Interactive to boost its management software story.

"But one area where they haven't made a large purchase is security," explains Daly. "H-P sells a lot of storage software and there's an obvious connection between storing data and securing it."

The recent success of companies like McAfee (MFE) proves that security is a top spending priority. McAfee, which was one of TheStreet's top tech picks for 2009, recently enjoyed an 18% second-quarter sales hike and beat analysts' profit estimate.

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