Terror attacks could stifle tech M&A.(mergers and acquisitions)

Byline: Olaf de Senerpont Domis in San Francisco

As financial markets reeled Sept. 17 in the first day of trading following last week's terror attacks, investment bankers and corporate dealmakers said market volatility and other aftershocks of the tragedy will significantly dampen technology mergers.

And for more on how the impact is affecting both sides of the Atlantic, see related story: Tech dealmakers in Europe fear the worst.

"While the reasons a lot of companies want to do acquisitions still hold, this is a period of such incredible uncertainty that companies will be trying to internally assess what all this means to them and their customers," said Kenneth Lamb, head of West Coast and technology M&A for CIBC World Markets.

Tech transactions were already on the wane before Sept. 11, when hijacked jetliners smashed into the Pentagon and the World Trade Center's Twin Towers. A general slowdown in the sector had already contributed considerably to a nearly 60% decline in U.S. M&A deal flow in the second quarter, compared with the feverish pace a year ago.

How the attacks affect dealmaking will largely be a function of how the disasters affect equity markets. If Monday was any indication, trading in days to come will be volatile. After four days of closure and with the specter of decreasing consumer confidence and looming U.S. military action, the Nasdaq in morning trading fell as much as 5.22% to its lowest point in nearly three years.

Such swings will make valuing companies much harder during merger negotiations, said Alec Ellison, president of Fort Lee, N.J.-based M&A advisory firm Broadview International llc. However, he argued that other factors could play a far larger role in stifling M&A activity.