RRE Ventures managing partner, James Robinson IV, attributes the decline in activity to market uncertainty surrounding "DC cliffhangers." Due to the presidential election and fiscal cliff negotiations, end of the year deal discussions were put on hold. But as the markets regained stability, deal talks resumed. Looking forward, Robinson says "M&A is coming, and big." Frank Aquila, co-head of Sullivan & Cromwell's global corporate practice, is also optimistic about tech deals. "Look for a significant number of tech deals over the next year or so," said Aquila in an email. "As the larger players seek to better position themselves to compete, they will look to make both significant strategic acquisitions as well as bolt-on acquisitions." Bankers are also predicting an uptick in tech M&A. Chet Bozdog, global head of technology investment banking at Bank of America Merrill Lynch, says "we expect 2013 to be a big year for tech M&A due to CEO confidence levels, the amount of cash on corporate balance sheets and the existence of reasonable valuations in the marketplace." Jeffery Bistrong, managing director at Harris Williams, is also optimistic about technology deals, particularly in the software and healthcare IT spaces. So which tech companies are in play? Industry experts tell TheStreet that the following companies are sensible or likely acquisition targets.
PrivCo's Hamadeh says an acquisition is likely. "Square will not do an IPO because from its inception it is a company that was built to be bought. Square has achieved impressive revenue growth, but through profit-less prosperity." Hamadeh makes an interesting point about Square's current business model. "Square's strategy has been all about generating increasing mobile payment volume at flat fees (no swipe fees) which by definition leads to adverse selection: that is, the merchants with the lowest average check price will use Square as it's cheaper, while those with large average check prices use a traditional banking solution tied mobile swipes using a mobile card processing device." Square is still gaining traction, so it's reasonable that the company could hold out for a better valuation in 2014. But with NCR, GoPago, LevelUp, PayPal and Bank of America's Mobile Pay all entering a similar space, there are no guarantees that they'll be a long-term market leader. With Dorsey on board (he co-founded Twitter), and a Starbucks ( SBUX) partnership, Square has certainly garnered a lot of media attention. As an early mover, Square has an advantage, but ultimately, the winning service may be the one that's the most cost effective and efficient.