As the economy sits in the toilet, corporations are out spending their hoarded cash. Apple is sitting on (pardon the pun) about $24 Billion, HP $15B, IBM $12B and Dell $11B.There were some interesting acquisitions in August including a great bidding war for a company called 3PAR between Dell and HP. For this particular play, it’s highlighting the value of cloud computing.
Buying 3Par, a data-storage company, would put both companies into the "cloud computing" space with corporate customers paying for software that is delivered over the Internet rather than housing it on their own computers. The bidding was remarkable (Dell still has till end of business today to counter) not only in the premium paid but also in the fact that 3PAR has never been profitable.
The bidding kept getting bigger and bigger:
This deal, going from five to ten times earnings, shows that cloud computing is strategically important to both companies. It’s the new frontier where you can ‘share space in the clouds’ (security is an issue and is being addressed with companies like Intel buying McAfee). Cloud computing offers several advantages. It reduces upfront costs, as the initial infrastructure is paid for by the cloud storage company. It negates the need for on-site data servers thereby reducing the need to employ in-house IT staff. And because multiple customers share resources in the cloud model, it lowers ongoing costs. It doesn’t matter if you are at work or mobile- the beauty is that your data is available.
The downside is that this particular deal is at a hefty premium. Someone has to pay and the theoretical savings in cloud computing storage will not get cheaper when it comes to pricing this particular part of the cloud for profit.
What’s next with all the hoarded cash? The deals in August are indicating that if the market doesn’t grow, corporations will do it in acquisitions. For M&A, the fall could see some aggressive plays.
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