A new report from Forrester Research declares that the wave of mega-acquisitions in the software industry is over for now, though big vendors will continue to snap up smaller firms as they round out their portfolios.

"We do expect more consolidation to occur, but predict that the acquisitions of Business Objects by SAP, Cognos by IBM, and Oracle's renewed bid for BEA will be the last hurrahs in this cycle for super-sized acquisitions within the software industry of vendors with more than $1 billion in revenues and deal sizes of $5 billion or more," analysts R. "Ray" Wang and Andrew Bartels said in the report.

The analysts noted that the market could see hardware vendors like Cisco make major software buys, but said such scenarios do not constitute software vendor consolidation in the traditional sense.

Three major factors will staunch the flow of megadeals, they argued.

Citing projections showing double-digit growth in global software revenue for 2007 and 2008, Wang and Bartels argued that vendors will not need to grow through large purchases in the immediate future, and will instead choose "organic growth and spot acquisitions" to satisfy shareholders.

Second, the credit crunch caused by the subprime mortgage meltdown is making it harder to borrow large sums. And thirdly, there are simply fewer large ISVs to buy, the analysts noted. They identified 18 large independent software vendors that are potential targets and said many of those can be eliminated because of "poor fit with strategy, financial or business questions, high price, or other considerations that stymie acquisitions."

IBM will be the most aggressive with acquisitions and may go after packaged applications, a field it has largely avoided to date, according to the report.

"The most likely scenario involves smaller acquisitions of key ISVs building on Websphere. But if IBM makes a move for packaged apps to compete with Oracle, top apps targets could include IBM partners like Infor, IFS, Lawson, or even SAP. Industry-specific targets could include Amdocs, Deltek, and Primavera Systems," the authors state.

Wang said he was comfortable making this prediction despite IBM's insistence that it has no designs on packaged applications. "Last year, they spent the whole year saying they were never going to buy a BI vendor," Wang said, referring to IBM's deal to buy Cognos.

As for Oracle, it will buy companies tied to middleware and vertical business applications, according Forrester. "We expect Oracle to make midsize bets in key verticals like project base solutions (e.g., Computer Methods International or CMiC, Manhattan CenterStone), financial services (e.g., Temenos), retail (e.g., Escalate), and telecom, utilities, and public services (e.g., SunGard).