Market for midsize acquisitions picks up

Firms with cash use crisis to buy rivals, boost product lines

After slowing substantially in the first half of this year, the market for small and midsize acquisitions is showing signs of life, as companies with cash - or access to cash - take advantage of the downturn to roll up competitors or extend their product lines.

"You can pull your horns in and wait for the storm to go by, or you can go out there and act," said Dale Calder, the chief executive of Axeda Corp., a Foxborough maker of diagnostic software for medical gear, data storage equipment, and automated teller machines. "If you're a buyer in this economy, there's some pretty good deals to be had."

Axeda, backed by Baltimore venture capital firm JMI Equity, is set to disclose this morning it is buying a leading competitor, Questra Corp. of Redwood City, Calif., for an undisclosed sum. The small deal will add about 20 workers to Axeda's 90-person payroll, which includes 65 employees at its Foxborough headquarters. It also will pick up some blue-chip customers, such as Siemens AG and GE Healthcare.

At least a half dozen other relatively small acquisitions involving Massachusetts companies - mostly as purchasers - have been inked over the past two months, even as the Wall Street collapse and slumping economy have cast a shadow over business activity worldwide. Just last week, Needham design software giant Parametric Technology Corp. snapped up the privately held Synapsis Technology Corp. of Spring House, Pa., in a transaction valued at about $10 million.

"We have a goal to end up at the top of the pile, and we're going to pick up some bargains," said Jim Heppelmann, the Parametric executive vice president of product development and marketing. Heppelmann said it's become easier to buy smaller companies that now can't access the capital they need for expansion.

Deals such as Parametric's and Axeda's are bucking the global trend, as the economic crisis reduces the number of companies being sold. The overall volume of mergers and acquisitions tumbled 36 percent to about $1.6 trillion in the first half of 2008 from the same period in 2007, according to data from New York re search firm Thomson Reuters. Deals valued at under $500 million, the so-called middle market that's been less affected by the credit crunch, fell 18.2 percent to $368.9 billion in the six months ended June 30 from a year earlier.

While next month's data is almost certain to show that deal-making fell even further in the second half of 2008, some merger and acquisition professionals think the market might be bottoming out and could begin a slow recovery in the coming year.

"We're seeing a crack in the ice," said Gail R. Long, the chief executive of the Boston chapter of the Association for Corporate Growth, a group representing midmarket merger professionals. "If companies have capital, this is a great time to make strategic acquisitions. And plenty of small banks and nonbank lenders are getting deals done."

Long said much of the activity in recent months has revolved around smaller deals that don't depend on giant financial institutions and global credit markets. Massachusetts, home to hundreds of small and midsize technology and service companies, is fertile ground for such transactions. Long predicted the trend will continue next year. "I don't think we're going to see 'happy days are here again,' not in all of 2009," she said. "But we're going to see gradual improvement."

With its purchase of Synapsis, Parametric added to its product line software that analyzes the environmental impact of new product designs. Like Axeda's acquisitions, it also brought on board big-ticket customers like Motorola Inc. and Microsoft Corp. It was the Needham company's 15th acquisition in the past five years, and executives there said its purchasing pace could accelerate as the recession drags on.

"We've been able to go out and buy companies now that a year ago would have cost us two or three times as much," said Bill Berutti, Parametric's vice president of corporate development.

There have been a number of other deals of note since October, most involving large companies drawing down cash to buy smaller companies: Web infrastructure company Akamai Technologies Inc. of Cambridge agreed to pay $95 million for Acerno, a New York analytics company.

Linux software vendor Novell Inc. of Waltham agreed to buy Virginia-based technology company Managed Objects. Waltham life sciences firm PerkinElmer Inc. acquired New Jersey engineering company Arnel Inc. And, the Arlington security company American Alarm & Communications Inc. bought Riel Security of New Hampshire. Financial terms weren't disclosed for any of those acquisitions.

On the other side of the ledger, Boston investment bank Revolution Partners, which among other things provides merger and acquisition services, was itself acquired by Morgan Keegan & Co., a Memphis investment arm of Regions Financial Corp., last week for an undisclosed sum. Revolution said it will operate as a division of Morgan Keegan but will retain its brand and Boston offices.

Robert Weisman can be reached at weisman@globe.com.