BMC Software Caught Between Cloud Boom and Tech Gloom

At BMC's $6.9 billion market value, Bloomberg calculates that an acquisition would be the eighth-largest U.S. software acquisition on record. But open-ended and large-cap M&A expectations have so far disappointed, even amid a land-grab for cloud assets. Bloomberg data also shows that a deal for a U.S. listed software company of BMC's size hasn't happened since 2007. Simply put, tech giants have been reluctant to cut mega-deals, instead putting near record cash to work in many small and midsized acquisitions.

Weaker than expected first quarter earnings reports from Dell and Cisco and a pivotal year for Hewlett Packard signal that there is a limit to just how bold tech turnaround efforts can be. Still, SAP's(SAP) $4.3 billion acquisition of Ariba(ARBA) on Tuesday shows that appetite for enterprise software and cloud-based solutions remains among cash rich IT giants.

Even after Tuesday's deal, high technology M&A is down 29% year-to-date when compared to 2011, according to ThomsonReuters data.

Elliott Associates 5.45% stake in BMC Software and its repeated calls for the company's management to initiate a sale process has many torn over whether it is a credible prospect. BMC's shares are up less than 10% to $42.90 since Elliott unveiled its hostile stake on May 14.

Houston-based BMC Software sells products to keep large corporate IT departments current on software updates and mainframe maintenance. It also offers businesses a way to plan, build and run cloud solutions, and has inroads to thousands of the largest corporate IT departments in the U.S.

BMC could be an attractive asset for the likes of Hewlett Packard and Dell as they try to shift from manufacturing PCs and into integrated business service providers -- in the mold of a multi-decade turnaround at IBM(IBM) . IT hardware and software giants Cisco and Oracle could also find BMC's software services and cloud assets attractive as they brace for competition from the likes of salesforce.com(CRM) and peers such as SAP.

"It is Elliott's firm belief that BMC is currently attractive to multiple strategic acquirers," wrote Elliott Associates portfolio manager Jesse Cohn in a May letter to BMC Software's board of directors. "We believe BMC could be attractive to private equity firms, and that such a transaction could serve as another pathway to deliver certain, premium value to stockholders."