A very interesting study was conducted recently by PricewaterhouseCoopers. Technology companies are showing their preference for making big acquisitions over doing many smaller ones, According to the report the number of technology deals in the second quarter decreased 35 percent, while total spending increased 19 percent compared to the same period last year. The biggest question that I have is whether we will see consolidation in the industry similar to what we have seen over the last couple of years in the financial services industry. Will Groupon merge with a compnay like Living Social or JetSetter?
http://go.bloomberg.com/tech-deals/2012-08-13-tech-companies-spend-more-on-fewer-acquisitions-study-says/
1 comment:
Zvi,
This was interesting to me, as my employer Cisco is very active in the M&A space.
Unfortunately, I have just discovered that I cannot post a photo in the "comments" section of this blog, because I was going to share a slide of Cisco's acquisitions throughout the past 10years.
While there are quite a few sub-$100M acquisitions, in recent years there have been several multi-$billion acquisitions such as WebEx ($3.2B), Starent ($2.9B), Ionrport ($850M), Tandberg ($3.3B), and recently NDS ($5B).
As a casual observer, it does seem that these acquisitions are getting larger, but there are also still plenty of smaller companies being scooped up.
My belief is that companies are looking for proven business models and profitability in their acquisition targets, and are less willing to make bets (educated though they might be) on the "next great idea". Investors are rewarding companies who exhibit consistent earnings, and with so much Fortune 100 cash sitting overseas, there is little else to do but look for growth opportunities through acquisition. In fact, buying new revenue streams is rivaling the returns gained by Corporate Treasury departments, so why wouldn't a company look for positive cashflow regardlesss of where it comes from?
The other point is that there is not as much money to be made in pure technology plays- where companies are spending the most money (and need the most help) is in integration. The consolidation occurring in the technology sector continues to revolve around companies' value being tied to reducing complexity and providing integration. This will likely never cease to be a focus area, but the companies might just keep getting bigger and bigger....
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