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Year-end M&A frenzy: What's the big rush?

Jo Maitland

In the past 48 hours, Seagate Technology announced its intention to acquire Maxtor Corp. for $1.9 billion, and IBM has gobbled up two software companies, Micromuse Inc. and Bowstreet Inc. for a little under a billion dollars in total. And there's still time for more.

Don't these guys want to go home!?

The answer, according to Wall Street aficionados, is yes, but not until they've got their bonuses!

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Investment bankers, who are the oil behind these deals, get paid a bonus based on how much profit their firm has made during the year from mergers and acquisitions. Letting a deal slide into next year means a smaller bonus right before the holidays. And bah humbug to that!

Apparently, the market tends to do better at the end of the year, too, as investors are a little more amiable to transactions. Maxtor's shares surged up $2, or 44%, to $6.52 after the deal was announced. Seagate was up 50 cents, or 2.6%, to trade at $19.10. And IBM and Micromuse shares bumped up, too.

There are always exceptions, of course. Symantec Corp.'s surprise acquisition of Veritas Software Inc. this time last year was a little too surprising for most people. Symantec's stock price took a hit at the time and has been in the doldrums ever since. But generally speaking, analysts say year-end deals are well received.

Another reason to close acquisitions before the new year is to have the company's full-year results include transactions so that the firm can start with a clean slate at the beginning of the year.

"You know how the market has performed, how you have performed, how much you have left to play with and how much rebalancing you will have to do at the beginning of the new year," says Steve Burg, analyst with Punk, Ziegel & Co.

Furthermore, every deal has tax implications and there could be certain breaks if a deal is done before year-end, but there are no specific tax laws that would apply universally.

Psychology presumably plays an important role, too. Starting the year moving ahead on a different path, versus back at the negotiating table, satisfies our longing for something new.

As an aside note to storage watchers, IBM's acquisition of Micromuse is similar to EMC Corp.'s purchase of network management company, System Management Arts Inc. It'll be interesting to see where Micromuse lands inside IBM and if Big Blue plans to do any kind of integration between storage and network management, as EMC has talked about.

Related Topics: Storage vendors, VIEW ALL TOPICS

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