Heightened activity and global expansion in the multifaceted tech dealmaking world has Wall Street jockeying for position. Here's who's leading the charge.

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For months, Tom Weisel — like several of his investment-banking colleagues who regularly exchange takeover rumors over egg-white omelets at Buck’s in Woodside, California, or lunch at the Sundeck on Sand Hill Road in nearby Menlo Park — had heard rumblings that Microsoft was quietly talking with Yahoo about a possible combination.

After all, if you’ve been around the technology space as long as the high-­octane dealmaker of 40 years has, you’ve come to learn that everyone talks to just about everyone in the close-knit Silicon Valley ­circuit. But no one — not even Weisel — was prepared for the shockwaves Microsoft CEO Steve Ballmer sent through the tech industry on January 31 when he called up Yahoo CEO Jerry Yang to inform him that Microsoft would attempt to embrace Yahoo in an audacious $45 billion bear hug the next morning.

“It wasn’t so long ago that you didn’t see such big deals — and certainly not hostile ones — in the tech space, but you look now, and this was just part of the constant stream of M&A deals on a ­daily basis,” says Weisel, 66, who heads Thomas Weisel Partners, a growing tech-oriented banking boutique based in Menlo Park. “Even with this market meltdown, it’s happening all the time. The big guys have a lot of cash, and they’re looking for vertical ­integration. That offer just reinforced what’s been happening in the tech space.”

True, the markets may be in a subprime funk, financing for big-ticket leveraged buyouts has evaporated and the economy is tipping dangerously toward recession, but the technology deal sector is in the midst of a resurgence after looking moribund just six years ago. As Microsoft’s offer made clear, the business is bigger than ever — but even more important, it has grown far more sophisticated and multidimensional. Tech banking isn’t just back from the dot-com bust. It has, in many ways, grown up.

“This bid fits the pattern of all the activity we have seen building momentum in the tech space for some time,” says Chris Varelas, the global head of technology, media and telecom investment banking at Citigroup Global Markets, who plans to leave the firm and launch a tech-focused private-equity outfit (see “Changing Lanes,” page 90). “The recent difficulties in the credit markets have highlighted the fact that technology banking is not just healthy and growing but even more important to investment banks seeking ­future growth or [looking] to replace lost revenue streams.”

Consider the deal flow in the past couple of years, which demonstrates how tech transactions have grown enormously in size, complexity and geographic breadth, frequently involving cross-­border matchups. Just last October, Germany’s SAP AG, that ­country’s largest business-management software concern, struck a deal to buy Business Objects SA, which is based in France and San Jose, California, for $6.8 billion. Also, Finland’s Nokia agreed to acquire Navteq, which provides digital map and navi­gational software, for $7.6 billion.

Meanwhile, private-equity funds, which traditionally have shown little interest in technology companies — especially those with solid ideas but little cash flow — have become increasingly active. Last April, for instance, Kohlberg, Kravis, Roberts bought First Data for $27 billion, and in 2006 a consortium led by the Blackstone Group (which included the Carlyle Group, Permira and Texas Pacific Group) snapped up Freescale Semiconductor for $17.6 billion. As Microsoft’s bid underscores, hostile deals, while not terribly ­common, are now accepted options, even for the giants.

Given such heightened activity and global technological expansion, some of Wall Street’s savviest players are dedicating significant resources toward jockeying for position in the tech sector. Carlyle, for instance, hired four new managing directors in January to sniff out deals in Silicon Valley, while Blackstone has been steadily adding staff to boost its own tech-buyout efforts.

“One of the biggest changes in the business has been not just volume but in the mix of business you see now,” says Bob Grady, head of Carlyle’s U.S. Venture and Growth Capital Fund and a former partner at tech boutique Robertson Stephens. “It used to be almost all IPOs. It was pretty straightforward. For the last eight years running, over 90 percent of all venture-backed exits have been through M&A, and less than 10 percent through the IPO market.”

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