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IBM Takes Kenexa to the Never-Ending Software M&A Party


IBM announced the acquisition of HR software producer Kenexa for $1.3 billion.


MINYANVILLE ORIGINAL Yesterday IBM (IBM) announced the acquisition of human-resources software company Kenexa (KNXA) for $46 per share, or $1.3 billion. That's a 42% premium from Friday's close.

This deal directly echoed two deals for HR software companies from earlier this year:

1. Oracle's (ORCL) buy of Taleo.

2. SAP's (SAP) purchase of SuccessFactors.

IBM's press release emphasized Kenexa's social media prowess, which makes an awful lot of sense given that the only social media company that's firing all cylinders today is the career-focused LinkedIn (LNKD). Consumer-focused names like Facebook (FB) and Zynga (ZNGA), however, are having difficulty monetizing their user bases.

However, there is a bigger-picture issue here for investors.

Think of it this way.

This year, including Kenexa, IBM has announced five acquisitions.

Oracle? Seven.

Our friends at Dell (DELL)? Six.

And if Hewlett-Packard (HPQ) wasn't still restructuring itself, you can be sure it would be cutting deals, too.

As I've discussed before (see Triangulating Dell's Bid for Quest Software, Microsoft Surface, and the Google Nexus 7), these mega-cap tech companies, whose growth rates barely outpace US GDP, love making deals.

There are a few reasons this is happening.

First and foremost, the law of large numbers is affecting all these names: The bigger a company's revenue base gets, the harder it is to generate meaningful growth, particularly in the relatively staid enterprise markets.

Additionally, Dell and Hewlett-Packard are fighting a can't-win battle against Apple (AAPL) and Google (GOOG) Android in a post-PC era dominated by mobile gadgets. So they need to shift as much business to the enterprise as possible.

And when the going gets tough, the tough go shopping.

This means that an awful lot of money is going to be made for those savvy enough to pick the right acquisition targets.

Unfortunately, a lot of folks will end up picking lousy companies and betting on acquisitions that never come.

So pick your spots wisely -- I would stick to names with an enterprise focus that are doing well as standalone companies. Buying stocks strictly to speculate on takeovers is a loser's game.

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