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Summary:

[qi:011] For many Web 2.0 start-ups, build-it-to-flip-it has been a mantra of sorts, with most hoping to get big payouts when Google, Yahoo or AOL cuts them a big check. Unfortunately, the credit crisis has turned those dreams into layaway plans. The 451 Group, a research […]

[qi:011] For many Web 2.0 start-ups, build-it-to-flip-it has been a mantra of sorts, with most hoping to get big payouts when Google, Yahoo or AOL cuts them a big check. Unfortunately, the credit crisis has turned those dreams into layaway plans. The 451 Group, a research firm, released an M&A report this morning that should give everyone a reality check.

Consider this year’s M&A activity at Cisco Systems (Nasdaq: CSCO), which has perennially ranked as one of Silicon Valley’s busiest shoppers. It has announced only four deals in 2008, just one-third the level of deals it has been averaging over the past three years. Cisco, which has the reputation of paying premium prices, inked 14 transactions last year, 10 in 2006 and 13 in 2005.

Similarly, after averaging a deal per month over the past two years, Google (Nasdaq: GOOG) has announced just four acquisitions in 2008. (The 55% decline so far this year of the formerly gravity-defying shares of the search engine may go some distance toward explaining its reluctance to shop.) And Dell virtually unplugged its acquisition machine, after only getting it going in mid-2007. It announced six deals in the second half of last year, but only one so far for all of 2008.

The report suggests things aren’t going to get any better for a while, and the bankers the researchers talked to said that the pipeline is dry. They expect 2009 to be the year when:

  • Divestures by large companies will increase but may not get any premiums.
  • Filing to go public isn’t going to get startups a premium.
  • The number of unsolicited deals will increase.
  • More venture-backed companies will try and buy out publicly traded competitors.
  • Valuations decline sharply.

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  1. Om, I think this would have been expected in the current economic climate. Prudent financial management is generally a good thing.

    But do you think this could discourage innovation or force a decline in the number of startups in 2009? A lot of universities would be having their grants cut also – which possibly means fewer commercialisations from schools.

    Thoughts?

  2. AGORACOM – George Thursday, December 18, 2008

    Om, you would think that acquisitions would be more robust given how cheap many targets must be right now.

    My call is that 2008 was a shell shock year where buyers just sat out the dance. In 2009, they’ll be looking to take advantage of good but cash-strapped companies. I know I would.

    Regards,
    George

  3. More people are losing the comfort of the mediocracy offered by big corporation. They will be challenged, and innovation, excellence will blossom. The sleeping lion will wake up..

    Regards,

    Subhankar Ray

  4. silicon valley dropout Thursday, December 18, 2008

    google has a lot of money on hand so its a bit surprising they arent buying more. but maybe they know 2009 will be a tough year and will need the extra cash to back them up. but yeah cisco is known to buy literally anything .

  5. Shaon Diwakar

    I think you have a point though I think we will actually see quite the opposite and see more innovation. remember because you are facing dire situations and lack of funds that you need to find creative solutions for your problems. on the college/university innovations, things aren’t going to be impacted as radically. I am not capable to answer your query about university-innovation coming to the market.

  6. @Subhankar… Oh that is a good vision for 2009 and I certainly hope that it comes true.

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  8. It is just as bad in the UK but wonder if we will see US firms snapping up companies over here in 2009 due to the weakness of the pound.

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