Emerson, the US engineering company, said on Tuesday it had agreed to acquire Avocent, which makes network equipment and software, in a $1.2bn deal intended to widen its services offerings.

The all-cash deal is expected to close next January and at $25 a share would give Avocent stock holders a 22 per cent premium from last Friday’s closing share price. Shares of Avocent surged in midday trading by 21.15 per cent to $24.86, while Emerson’s stock was up by 1.96 per cent to $39.44.

The St Louis-based Emerson, which said in August that its third-quarter sales were off by 22 per cent, is hoping to gain a foothold managing power data centres and will be able to provide information technology solutions to its customers. The company generated $2.6bn in revenues from its data centre business in 2008.

“Combining Avocent’s technologies, relationships and installed base with Emerson’s power and cooling presence allows us to offer a more compelling solution to our data centre customers’ most pressing challenge – energy efficiency,” David Farr, Emerson’s chief executive, said in a statement.

The Emerson offer comes amid a flurry of deal activity in recent weeks after companies spent much of the last year holding back on acquisitions during the recession. Last week Xerox agreed to acquire Affiliated Computer Services and Cisco announced a $3bn cash offer for Tandberg, a Norwegian videoconferencing company, while Dell made a bid for Perot Systems the prior week.

In the first nine months of the year, however, the global value of deals fell 37 per cent to just $1,620bn, from the same period last year, according to figures from Dealogic.

In a conference call with analysts, Mr Farr said that Emerson was “still in the acquisition hunt” and that its balance sheet could handle more deals. He noted that the Avocent acquisition was not about short-term cost synergies but would help the company grow in the longer term.

“This is not the end of the game for us,” according to Mr Farr, who said he had been in talks with Avocent for two years about the deal after initially expressing interest.

Avocent, which is based in Huntsville, Alabama, reported revenues of $657m last year, half of which came from outside the US. The company has been planning to grow its software sales at a faster pace to make up for slowing sales of servers and will use its technology for monitoring switching devices along with Emerson’s power centres.

Mike Borman, Avocent’s chief executive, called the merger a “powerful combination”.

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