2006: The way forward.

Of all the ways to measure the health of the information industry, one of the best is mergers and acquisitions deal flow: if there is a lot of buying and selling going on, chances are the market is strong, values are rising and there is no shortage of eager buyers.

And so began 2006, which follows a year of record transaction volume and value for Berkery, Noyes— twenty deals closed, representing more than $2 billion in transaction value. More important than the numbers, however, is what they represent: a powerful surge in M&A activity across every information and technology industry segment.

The broad diversity of our client base points to a larger trend, one that echoes throughout these pages. That trend, in a word, is convergence. Long touted as the elusive and, until recently, unfulfilled Holy Grail of the information business, companies of every stripe are finding ways to package content with the tools and technology that make it easier to access, manipulate, analyze, and distribute. Most of those who succeed in the “solutions” business, as the content-plus-tools convergence is often called, do so by buying, rather than building, the components they do not own.

Convergence, of course, is but one of the forces driving all this M&A activity. A favorable economic climate is surely another: still-low interest and tax rates, a relatively weak dollar, and an abundance of private equity capital all combine to fuel aggressive bidding for information assets.

Given the strength of these trends, we expect to see broad-based and robust mergers and acquisitions activity throughout 2006 and beyond. While these are the dominant themes of the year now unfolding, they are by no means the only ones. In this issue, our managing directors offer a closer look at several information and technology market sectors with an emphasis on the key features and emerging trends that support our positive outlook for the year ahead.

M&A forecast

As we correctly predicted last year, private equity buyers drove M&A in 2005, and will continue to place high valuations on quality information assets in 2006, even as strategic buyers, now in fighting trim after shedding non-core assets, assume their rightful place at the acquisitions table. Their renewed interest, combined with the continuing private equity appetite, will support higher multiples for the most attractive properties. Drawn by stronger valuations, once reticent sellers will show increasing receptivity to good offers, pointing to more opportunity for everyone in the year ahead.

Solutions sell

In recent years, literally thousands of specialized, innovative niche players—many of them well ensconced and highly profitable— have emerged to meet the specific needs of highly targeted users. In their effort to grow vertically and add value to aging product offerings, the larger strategic information providers will snap up these smaller, customer focused businesses in a steady stream of relatively narrow but nonetheless robust auctions.

Cautious, not comatose

The handful of large, diversified and generally healthy information powerhouses will step up their acquisitions activity in 2006, motivated by the need to find new growth avenues and mindful of those nimble, entrepreneurial upstarts nibbling at the edges of their markets. Emboldened by a stable, if not rosy, economic climate, the previously sidelined majors will take a good, hard look at their targets, apply rigorous belt-and-suspenders due diligence, and only then step up to the price.

Flat world or flat line?

While we’re looking at the next twelve months, we can’t help but wonder where this industry will be in 30 or 40 years. The immediate answer is India and China, whose rapid growth into economic superpowers may offer more opportunity than threat to the current information industry leaders. As those economies expand, so will their demand for information and education. Any forward leaning growth strategy that omits half the world’s population—and by far the lion’s share of its economic growth—is a slow boat to you-know-where.