Market valuations and cash-burn rates have improved significantly among enterprise software vendors in recent weeks. Larger vendors are using the opportunity to pull the trigger on acquisitions that they believe will provide long-term shareholder value. Just last week, three hit the wire: IBM is purchasing privately held Tarian, Documentum is buying TrueArc, and Symphony Technology Group is acquiring Industri-Matematik International (IMI).

AMR Research has spotted several smaller vendors that may also be scooped up soon. Our criteria include a low valuation (trading at or below its cash position), stable operating cash burn and expense control management. Some publicly traded vendors with a financial status or strength in technology that places them high on the acquisition radar screen include Blue Martini, Brio Software, Chordiant, ClickCommerce, E.piphany, Evolve, EXE Technologies, I- Many, Interwoven, Mercator, Niku, Onyx, Pivotal, Retek, SeeBeyond, Stellent, Verticalnet, and Vitria.

Private companies are more realistic about their existing strategy options and are contacting potential acquirers. More importantly, they are doing it earlier and with a better understanding of the short- and long-term value that they can add to an acquirer. With the help of an M&A advisor, they are setting valuations that make sense in the current economic climate. With economists predicting a longer road to recovery and reduced valuations, and with a number of firms trading at or below net cash balances, M&A activity will be likely to continue to increase into 2003. The larger corporations are beginning to open their cash bags in hopes of finding a treat (small vendor with liquid assets, solid technology and sound management team at a discount). It was all a matter of time until M&A picked up. We noticed a small up-tick in activity in late October with five enterprise software deals. Early indications suggest that activity will only increase in November and beyond.

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