BMC Software Caught Between Cloud Boom and Tech Gloom

NEW YORK (TheStreet) -- If you discount Facebook's (FB) lackluster first days of trading, the social network's record $16 billion internet initial public offering and the listings of LinkedIn (LNKD), Zynga (ZNGA) and Pandora (P) show that tech is in the midst of a valuation boom not seen since the late 1990s.

Life in the technology sector is far from coming up all roses, though. Web pioneers like AOL (AOL) and Yahoo (YHOO), PC titans such as Hewlett Packard (HPQ) and Dell (DELL), and business services giants Cisco (CSCO) and Oracle (ORCL) are trying to tweak their businesses to keep step with rapid change that's chipped away at growth prospects and share prices.

Amid a contrasting outlook for tech's hardware and software giants, and a new set of nimble and fast-growing peers, investors may want to focus on an activist investor push for a sale of BMC Software (BMC) as a read on just how aggressive blue chips can be in using M&A to brace for an onslaught of competition coming from clouds, smartphones and digital startups.

Will BMC Software be the next big tech deal?

Earlier in May, activist hedge fund and experienced tech investor Elliott Associates unveiled a bet on what would be the biggest U.S. software takeout since the financial crisis in pushing for a sale of BMC Software (BMC), whose market cap stands at $6.9 billion. The move is notable because, at once, Elliott Associates is making a $350 million-plus stock bet on M&A interest in the enterprise software space, while it's targeting a deal at the upper end of what may be conceivable in the sector.

At BMC's $6.9 billion market value, Bloomberg calculates that an acquisition would be the eighth-largest U.S. software acquisition on record. But open-ended and large-cap M&A expectations have so far disappointed, even amid a land-grab for cloud assets. Bloomberg data also shows that a deal for a U.S. listed software company of BMC's size hasn't happened since 2007. Simply put, tech giants have been reluctant to cut mega-deals, instead putting near record cash to work in many small and midsized acquisitions.

Weaker than expected first quarter earnings reports from Dell and Cisco and a pivotal year for Hewlett Packard signal that there is a limit to just how bold tech turnaround efforts can be. Still, SAP's (SAP) $4.3 billion acquisition of Ariba (ARBA) on Tuesday shows that appetite for enterprise software and cloud-based solutions remains among cash rich IT giants.

Even after Tuesday's deal, high technology M&A is down 29% year-to-date when compared to 2011, according to ThomsonReuters data.

Elliott Associates 5.45% stake in BMC Software and its repeated calls for the company's management to initiate a sale process has many torn over whether it is a credible prospect. BMC's shares are up less than 10% to $42.90 since Elliott unveiled its hostile stake on May 14.

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