The tech sector has certainly been hot in recent weeks, with big names being snapped up by even bigger names. On top of that, the acquirers are paying a pretty penny in premiums.
The blockbuster deals include: IBM Corp. (NYSE:IBM) paying a 120% premium for Unica Corporation; Dell Inc. (DELL) offering an 87% premium for 3PAR Inc. (NYSE:PAR) (which has now been topped by Hewlett-Packard Co.); and Intel Corp. (NASDAQ:INTC) buying McAfee Inc. (MFE) at a 60% premium.
“If the market will not pay for growth opportunities, acquirers clearly will,” Scott Penner, analyst at TD Securities, wrote this morning. He notes that the S&P 500 IT sector is trading at 12 to 13 times forward earnings per share expectations, which is far off its historical median.
“It is attractive for a sector that appears to be flush with excess capital to augment the slow pace of organic growth with acquisition activity,” he wrote.
TD likes the tech sector in general right now. A number of the tech stocks it covers have a “buy” rating, particularly the bigger names such as Open Text Corp. (NASDAQ:OTEX), CGI Group Inc. (NYSE:GIB), and MacDonald Dettwiler and Associates Ltd. (MDDWF.PK)