New Business September 24, 2009, 5:00PM EST

Tech: The Return of Risk-Taking

Suddenly, there are mergers and acquisitions, IPOs, and investors galore. Will the reenergized industry lead the U.S. out of the Great Recession?

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In the past few weeks, Jon A. Woodruff, who heads up technology mergers and acquisitions in Goldman Sachs (GS)' San Francisco office, has seen the mood shift in Silicon Valley. Tech companies are stepping up their dealmaking after a quiet year. In a span of 21 days, Goldman has worked on three major deals—eBay (EBAY)'s sale of Skype, Adobe (ADBE)'s purchase of Omniture (OMTR), and Dell (DELL)'s acquisition of Perot Systems (PER). "People seem more willing to take out their checkbooks again for the right assets," says Woodruff.

The surge in deal activity is a sign of broader change: Risk-taking is making a comeback in the tech industry. The first three weeks of September saw $19.3 billion in technology mergers and acquisitions, up from $2.5 billion in August and $11 billion last September, according to Thomson Financial. Meanwhile, more companies are filing for initial public offerings, including such closely watched startups as Watertown (Mass.) battery maker A123 Systems. Venture capital investments are perking up, too. The micro-blogging service Twitter has raised a round of funding that gives the nearly revenue-free startup a valuation of $1 billion, according to several reports.

All this activity is being driven by a central idea: The worst of the recession is over, and it's time to prepare for better times. Economists and other experts say many corporations put off technology investments during the downturn and are likely to step up spending to generate the productivity gains vital to the bottom line. Mark M. Zandi, chief economist of Moody's Economy.com (MCO), predicts that tech spending in the U.S. will increase 4% in 2010 and 10% in 2011, after dropping 10% this year. "I think we are at a turning point for tech," he says.

If that's true, it bodes well for the overall economy. Zandi says that so many other important sectors of the economy, including finance and real estate, remain troubled that technology is one of the few industries that can bolster the U.S. recovery. In addition, since consumer spending is likely to remain weak, economic growth will hinge on business investment and exports, two areas driven by technology.

There are almost certainly more deals to come, say bankers, tech executives, and investors. Many tech companies have strong balance sheets and the cash flow to finance acquisitions. Credit markets are improving, which should lubricate the deal flow. Most important, buyers and sellers are finding it easier to agree on price. Earlier this year, with their stock prices at long-term lows, companies were reluctant to sell. Today buyers want to strike before asset prices run up any more. "Now that valuations have come back a bit, the value perceptions of buyers and sellers are a little more aligned," says eBay President and CEO John Donahoe.

Dell's deal for tech services provider Perot Systems on Sept. 21 is one example of the shift in psychology. Dell executives say they began talking to Perot Systems Chairman Ross Perot Jr. about a deal in 2007, but Dell also held discussions with other tech services providers, and many were holding out for better prices. Negotiations with Perot heated up over the summer as the stock market surged. Ultimately, Dell paid a 68% premium for Perot, and it will still be able to pay the entire $3.9 billion purchase price in cash thanks to its flush balance sheet.