Google and Facebook Make Handful of “Acq-hire-sitions”

March 16, 2010

A number of recent deals announced over the past few months by big Internet players Google and Facebook have been a different kind of acquisition — mainly “acq-hire-sitions.” In other words, these larger companies have been buying up smaller start-ups mainly to make talent hires. Google made two such “acq-hires” in February alone while Facebook boasts one of its own. This is not a new phenomenon – Cisco made headlines back in 2006 for its “spin-ins,” where employees would leave the company for a few years to build their own start-ups, only to be acquired by Cisco in the end.

Google has made three of these types of acquisitions over since the end of 2009: online word processor start-up AppJet in December, and social search engine Aardvark and email app compay ReMail in February. The common thread among these three start-ups is that they were all founded by former Google employees. These acquisitions allow the company to tuck in all the creative brain power it had previously leaked out right back into Google’s ever-expanding umbrella. In the case of Aardvark, Google has kept the service running and integrated it into its Google Labs platform, but both ReMail and AppJet were shut down after the purchase (AppJet’s product EtherPad is still available for the existing users, but only until March 31 and Google has since open sourced ReMail). The few acquired employees from the deals have been put to work for Google’s own ventures.

A similar situation is happening at Facebook. The social networking giant recently acquired Octazen, an address book importer, which met a similar fate. The company, which consisted of a mere two employees, was merged into Facebook’s team and the technology was put to rest. The company previously made two similar acquisitions as well, starting in 2007 with Parakey, a web operating system, and more recently in August with social aggregation and search site FriendFeed. Both companies added behind-the-scenes talent to the Facebook team, though at the cost of the acquired technologies.

These companies are not the first to make acquisitions strictly based on talent, and they certainly will not be the last. There are swaths of start-ups springing up every day run by talented individuals which could potentially be prime candidates for M&A in the near future. Particularly, a handful of startups run by former Googlers, including video analytics and advertising platform Ooyala, customer analytics provider TellApart, and how-to video site Howcast, could see themselves being wrapped up into larger tech firms. The question remains, whether these start-ups will be picked up for their technologies, or simply for the brain power behind them.

Can Disney/Marvel Deal Spur Better M&A Market?

September 1, 2009

Our Speidy-sense is telling us that Disney’s acquisition of Marvel may be a good sign for the M&A market ahead. Disney announced that it is acquiring the comic book giant in a strategic acquisition — paying $50 a share and valuing the company at approximately $4 billion with a Deal Value/Revenue multiple of 5.9x. At Updata, we have a number of clients with the same mindset — new sell-side clients who are not distressed and looking for a reasonable M&A exit, as well as buyers who are looking to grow strategically through acquisitions of healthy targets at rational values.

Disney’s acquisition of Marvel is the first of a potentially changing M&A landscape — it is relatively large, is not being done for distress purposes and has Disney paying a healthy price (29% premium to public value). Michael Corkery of the WSJ believes that Disney may have broached a psychological barrier in M&A by completing a deal that neither company says it needed to do. According to CEO Robert Iger:

“This was a company that we admired that we saw growing right before our eyes, that we were impressed with. So it was not driven by anything other than continued interest in what Marvel is and what they have done. We don’t have any…problematic strategic holes. We did not have any situation that in any way suggested that this was a must-do deal.”

The end of August also brought another similarly thought out deal with Baker Hughes’ $5.5 billion acquisition of BJ Services. The purchase price represents a 16% premium over Friday’s closing price and both companies explained their rationale behind the transaction was simply that a combination would allow both to better compete in their markets. This new found gall for deal that are simply beneficial for the buyer and seller could serve as kick start for other companies with larger cash reserves and sturdy balance sheets looking to get back in the game, such as Apple and Microsoft, which both have about $25 billion in cash on hand, Cisco, which has about $29 billion, and Google which has nearly $18 billion.

Although two deals does not necessarily mean an M&A boom is on the horizon, if Q2 was any indication, deal volume is starting a rebound. Updata’s database shows software deal volume has generally followed total deal volume for the U.S. for the past few years (with the exception of Q4 2007 and Q1 2009, where software deal volume trended higher). Our data shows that deal volume spiked in Q2 at $25.4 billion and Q3 is already nipping at the heels of Q1’s $6.9 billion and should easily surpass it with September’s help.

We believe there will be increase in M&A activity in the near term due to a number of factors, including:

  • The rebounding equity markets, which are highly correlated with M&A activity levels;
  • An eventual reopening of the IPO market, which will allow companies to deleverage as well as increase working capital reserves, which can potentially be used for acquisitions;
  • Substantial private equity capital available for investment, as many funds have held off on making investments in the past year;
  • Increased reports showing optimism that the economy is finally on the rebound and that the worst of the last year is now in the past.

It is likely, however, that it will take several months before actual announcements are spurred from this recent deal activity. As the markets continue to move past the devastating events of last September, companies will likely begin refocusing their attention back on traditional M&A and less on their own survival. If, as we expect, sellers have “reasonable” expectations and strategic buyers start to step up to the plate, the M&A market will begin to return to more normal levels.

Technology Giants Go Shopping In A Down Market

August 1, 2008

by Don More and Lorie Roscitt

While the recent softness in technology M&A has been well documented, certain companies – which we call the Tech Titans – evidently did not get the memo. These companies (Microsoft, Google, IBM, Cisco, Oracle, and HP – all with market capitalizations in excess of $100 billion and operations that cross multiple technology sectors) have been prolific buyers during the past 12 months.

Since August 1, 2007, (which roughly coincides with the start of the current credit ‘crisis’), while the NASDAQ declined 8.7%, the Tech Titans purchased over 60 technology companies, for combined disclosed enterprise value of $30 billion. (Many deal values are undisclosed.) As a group, they paid a healthy median trailing revenue multiple of 4.8x and a trailing EBITDA multiple of 18.5x.

As shown in the chart below prepared by Updata Advisors, acquired companies operate across tech sectors highlighting that the Tech Titans are exploiting market weakness to fill out product portfolios, augment growth, and remain competitive.

Eight of the acquired companies purchased in the past year by the Tech Titans were publicly-held companies whose shareholders were paid a median 1-day premium of 28% and a median 30-day premium of 44%.

Overall, at least 50 public IT companies, representing $70 billion of market capitalization, were acquired over the past 12 months. While this marks a decline over the prior year (August 2006-July 2007), which saw $99 billion of public take-outs due to private equity activity, strategic buyer volume actually rose 35% since the market downturn (see chart below).

Tech Titan acquisitiveness, together with a big increase in public-public M&A activity, highlight ongoing strength in tech M&A and a realization that the market is getting more competitive and that the tech market is viewed by buyers as ‘cheap’ by historical standards – perhaps the sign of a nearing bottom.


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