Investopedia: Will 2011 Be Another Wild Year In Software?

Perhaps more than any other sector in 2011, M&A played a major role in valuations and investor expectations in software in 2010. With companies increasingly comfortable with the economic recovery and their own balance sheets, and an insatiable demand from Wall Street for growth and so-called catalysts, 2011 could be yet another year of above-average M&A activities. Not only is this good news for the large investment banks that will likely win the advisory business for these deals, but software investors may benefit from the tailwind as well. 

What are some of the names that investors might want to watch in 2011?

BMC: Customers First
In broad terms, BMC Software (NYSE:BMC) helps its customers manage their IT environment - an increasingly important task as virtualization and cloud computing make what was already a complex job even more difficult. What BMC offers is a lot of what might be considered "blocking and tackling"; monitoring systems for equipment failure and allocating more servers in response to demand surges may not seem exciting, but they are important to the overall operation of a company's IT. BMC's relatively lower growth rate probably will not prompt a huge buyout valuation, but this could be a useful "back filling" acquisition for a tech company that wants a well-regarded, very sticky software provider. (For more, see The Next Cloud-Computing Takeovers.) 

Searching for Dividends 
Check Point Software (Nasdaq:CHKP) is a rather rare bird in software these days - a company with good growth prospects (analysts expect double-digit revenue growth), respectable returns on capital and a valuation that actually does not look ridiculous. As a leader in security, particularly in the firewall and VPN space, Check Point is strongest in markets that used to be hot but still remain essential and quite profitable. Accordingly, a deal for Check Point could be one of those transactions that generates little buzz for the buyer at the time of the deal, but pays dividends over time. 



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