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Why a Sudden Surge in Tech M&A? Startups Pay Attention

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Silicon Valley companies — big and small — are off on a shopping spree and if you’re a startup, that is really good news. First a rundown of some of the deals making news today.

  1. Symantec is said to be buying the security division of VeriSign for about $1.3 billion.
  2. Yahoo bought Associated Content for a rumored $90-$100 million.
  3. Priceline bought TravelJigsaw, a Manchester, UK-based global online car rental agency that offers its services in 80 countries, for an undisclosed amount of money.
  4. Playdom bought social game maker Acclaim for an undisclosed amount of money.
  5. Cisco bought design house Moto for an undisclosed amount.

And if you look at some of the deals announced earlier, you know the M&A activity has been in full swing.

  1. HP bought Palm for $1.2 billion.
  2. SAP bought Sybase for $5.8 billion.

Last week Stacey pointed out the sudden spurt in acquisitions, especially in the cloud computing arena.

A focus on clouds, especially managing clouds in ways enterprise customers (GigaOM Pro, sub req’d) might want has led to several acquisitions so far this year on the part of big tech vendors like IBM, VMware and CA, all of which are looking to add new functionality in order to broaden their business. Hear more on these companies’ acquisitions strategies at our Structure 2010 conference June 23 and 24.

So what’s going on? Why this sudden urge to buy? Well, for the past 12 months or so, many large companies have been sitting on the sidelines, trying to get through what was arguably a heinous time in the economy by cutting costs and controlling margins. A typical (and safe) way to do this is by cutting one’s workforce and eliminating projects that cost money.

However, as the economy has turned, many large companies are trying to find ways to add newer products and thus goose up their business. Take, for example, Yahoo’s acquisition of content factory Associated Content is an effort to cash in on the slowly but steadily growing demand for display advertising. This is a short-term trade Yahoo is making in order to boost its advertising revenues.

I won’t be surprised if we see the drumbeat of deals get louder and louder. For startups that means one thing: good news.

Chart: Total Venture Backed M&A Deal Volume Through Q1 2010

This iChart shows the NVCA Q1 2010 release of the total venture backed mergers and acquisition (M&A) deal volume, together with the data of the past years – quarter view.

Total Venture Backed M&A Deal Volume Through Q1 2010

Powered By: iCharts | create, share, and embed interactive charts online

11 Responses to “Why a Sudden Surge in Tech M&A? Startups Pay Attention”

  1. Not only M&A, but there have been some really big rounds as of late as well. 8-figure rounds are, all of a sudden, all over the place.

    One note on Associated Content: everyone is pointing to AC being a big driver for more original content via SEO which will ultimately mean display revenue. While that’s true in some part, the one thing most journalists haven’t reported on is that AC gives Yahoo! a tailor-made low-cost custom publishing arm. Years ago this was done only done in print (Time Inc and Meredith etc doing custom magazines for owners of, say, Volvos) but those same clients are moving away from pricey print projects and putting that into large-scale custom editorial on the web — video, how-to articles, etc. Those clients have found their ad agencies charge too much for these services, so the media companies with low-cost edit strength can (and are already) filling in to the tune of large $.

  2. We certainly see this and agree that this is only going to accelerate. Perhaps more importantly, it will be accompanied by a similar surge in the number of strong, growing, independent businesses (which Heroku firmly intends to be a part of.) The combination of the inherent agility of being a startup, the reduced capital requirements and faster time to market of cloud, and the exciting advent of new platforms and capabilities like Twitter, Facebook, iPhone/iPad, Android, and real-time data are all driving a new wave of innovation. They are also driving business models where new independent companies can thrive.

  3. Om
    You did a post last year where you asked for a list of top acquisition candidates. Curious as to how the comments fared. Don’t think any of the ones I mentioned have happened but I’m still bullish on them, Citrix especially given their Xen Server work. Any predictions?