Happy days are here again!
Happy days, that is, for the shareholders of companies that suddenly find themselves the beneficiaries of huge takeover offers. Or, better yet, bidding wars.
(Just ask the shareholders of 3PAR, which recently got nearly double the original price because HP and Dell got in a macho-man contest about who could pay more.).
HP for ArcSight, HP/Dell for 3PAR, Intel for McAfee, HP for PALM, BHP for Potash…the deals are coming fast and furious now. And there are more where those came from.
Why have big companies started snapping up smaller companies again?
- Big companies have massive mountains of cash that are earning nothing that they need to find something to do with.
- Big companies are struggling to grow revenue in this crappy economy (and, therefore, are eager to buy growth).
- Smaller companies are relatively reasonably priced, thanks to the cratering of global stock markets.
Put all those together, and big-company CEOs are likely seeing dozens of Wall Street M&A pitches a week.
So who’s next?
To figure that out, you need to think about which companies are likely to be buyers and what types of companies they might want to buy. The buyers, some of which have already revealed themselves, generally have three things in common:
- Tons of cash and/or cash flow
- Slowing (or slow) growth
- Leading positions in relatively mature markets
The targets, meanwhile, also generally also have some things in common–namely, one or more of the following:
- Unique, or at least rare, core competency (hard to build)
- Rapid growth
- Lots of “synergy” with the acquirer (read: Costs that can be cut that will make the deal “accretive” for the acquirer).
Many of the potential tech acquirers have already been in the market in a big way–Intel, Cisco, HP, Dell, etc. But there are many more acquirers with tons of cash and slowing growth that will likely get active soon.
And who will they be buying? How much will they pay?
Business: Aggregates questions and answers, currently focused on the tech industryMarket Value: Currently private, $100 million
Potential Buyers: Google, Facebook, AOL, Yahoo
Current Stock Price: NA
Takeout Price: $200 million
Rationale: Quora is the latest super-hot Silicon Valley company. It has developed a new content user-generated Q&A content model. If Quora breaks out of the tech niche, its currently tiny traffic could explode. So potential acquirers may try to grab it now, while they still can. (For Yahoo and AOL, meanwhile, Quora could provide some much-needed cred in the Valley–at least until the deal closes and the cool kids leave).
Business: The largest independent online news and opinion site
Market Value: Currently private, estimated value $150 million
Potential Buyers: Yahoo, Time Warner, other media companies
Current Stock Price: NA
Takeout Price: $300+ millionRationale: The 5-year old Huffington Post is gradually becoming an established nationwide new-media brand. The company’s combination of aggregation, original content, and user-generated comments have put the entire newspaper industry to shame, and HuffPo is now larger online than all newspapers, with the exception of the New York Times. HuffPo is in the business Yahoo and other content companies want to be in, and it is a unique asset that others will find hard to duplicate. It’s also an excellent hedge for companies that are highly dependent on print ad revenue. So someone will soon be writing a nice check for the place.
Image: btouniversity via Flickr
Business: Email and web-based marketer of traffic packages and deals.
Market Value: $300 million
Potential Buyers: Priceline, Expedia, Orbitz
Current Stock Price: $20
Takeout Price: $30Rationale: A former high-flier, Travelzoo has since crashed to earth. The company is still profitable and growing nicely, though, and its media/commission revenue stream would be a nice complement to the transaction-based revenue streams of the the web-travel big dogs.
Business: The leading provider of Internet site “ratings”–the Nielsen of the online world.
Market Value: $575 million
Potential Buyers: Nielsen, naturally.
Current Stock Price: $18
Takeout Price: $30Rationale: Nielsen has had a monopoly in the TV ratings business forever. On the Internet, meanwhile, Nielsen is in the annoying position of having to compete with several ratings providers (Comscore, Quantcast, etc.). The online ratings business is under assault from lower-priced or free offerings, which means that the leaders need to shore up their control of the high end of the market. Nielsen is a huge company. It has too much debt, but a billion-dollar acquisition should still be within its capabilities,.
Business: Internet-based photo publishing and printing Market Value: $600 million
Potential Buyers: Amazon, Alibaba
Current Stock Price: $22
Takeout Price: $30
Rationale: A nice service-based e-commerce business that Amazon could quickly roll out internationally.
Blue Nile (NILE)
Business: Online jewelry (including diamonds) retailer
Market Value: $600 million
Potential Buyers: Amazon, Walmart
Current Stock Price: $41
Takeout Price: $65Rationale: Blue Nile is the leading online diamond and jewelry retailer. There’s no reason for the company to remain independent, and there is every reason for a big player like Amazon or Walmart to pony up for it. This is a complex business that is not easily imitated, and the price tag just isn’t that huge. And the international opportunity aways.
Tim Westergren, founder of Pandora
Business: The leading Internet music radio company
Market Value: Currently private, worth $1+ billion
Potential Buyers: Yahoo, Time Warner, Comcast
Current Stock Price: NA
Takeout Price: $1.5 billionRationale: After several near-death experiences, Pandora has broken through. It is now a $50+ million Internet streaming business that has the potential to become a must-buy for any advertiser who wants to take advantage of audio ads. The company’s ability to combine both huge reach and targeting is astonishing, and it will only get more so. It’s another unique asset that will be very hard to duplicate, and some big player will eventually realize that and step up.
Business: Real-time online restaurant table reservation serviceMarket Value: $1.2 billion
Potential Buyers: eBay, Amazon, Oracle, Microsoft, Salesforce.com
Current Stock Price: $53
Takeout Price: $75
Rationale: OpenTable has built a unique asset with a highly predictable and consistent revenue stream. It does not fit perfectly with any existing business, but it is one of the leading examples of a new form of cloud-based business application that will eventually be emulated in other industries. Some rich, visionary company will see an opportunity to expand into a new form of hybrid consumer-business applications and make a play.
Business: Daily deal website that sells “groupons” to users — the discount is only valid if a certain number of people sign up.Market Value: Currently private, estimated value $2 billion
Potential Buyers: Amazon, eBay, Walmart
Current Stock Price: NA
Takeout Price: $4 billion
Rationale: Groupon has invented a new form of marketing that will become as much a part of everyday advertising and commerce as classified ads used to be. Groupon has been so wildly successful that, in the space of a year, more than 100 Groupon clones have sprung up to capitalize on the “daily deal” concept–but none of them has gained anywhere near the traction Groupon has. Although Groupon will demand a massive takeout premium, a visionary company like Amazon or eBay or Walmart might realize that Groupon’s success will be hard to emulate. And then they’ll pony up…
Business: The online telephone and messaging company.
Market Value: Currently private, estimated value $3+ billion
Potential Buyers: Cisco, Google, Microsoft, Facebook, Verizon (unlikely)
Current Stock Price: NA
Takeout Price: $5 billionRationale: Now that Google has built simple telephone-calling into Gmail, this service will be required for any company that wants to offer an online communications tool (think Microsoft Outlook, Facebook, Yahoo, etc.) Meanwhile, the old carrier model of charging for “minutes” will increasingly go the way of the dodo bird. Skype is the independent leader in this market, and it has been quietly growing its business while (absurdly) being hidden inside eBay. But that’s over. Once Skype goes public (or possibly before), someone will develop the gonads to make a play for it. And as soon as one big player does, others will follow.
Business: Twitter (enough said). Market Value: Currently private, worth $2-$3 billion
Potential Buyers: Google, Microsoft, Facebook
Current Stock Price: NA
Takeout Price: $5 billion
Rationale: Twitter is unique. It has killed all of its competitors, and it continues to grow, altbeit at a slower rate. The company is in the early stages of developing a business model, and early reports on the performance of its “sponsored tweets” is good. Google is NOWHERE in social networking, and it desperately wants to be. Microsoft, meanwhile, has finally pulled the plug on its own would-be Twitter-killer. If either of these cash-rich companies want to have a hope in hell of building a social business, they’ll take a deep breath and write the check.
Image: kevinkrejci via Flickr
Business: The leading web content delivery service.
Market Value: $8.5 billion
Potential Buyers: AT&T, Verizon, Comcast, other major Internet carriers
Current Stock Price: $46
Takeout Price: $70Rationale: Long-haul Internet carriers are “dumb pipes”–through which the value-added applications of companies like Google, Amazon, and Skype flow. Carriers are trying to move beyond this and charge for value-added services, but the “net neutrality” constituency will continue to make this difficult. Any time a carrier tries to charge for “premium” services, net neutrality zealots freak out (see the recent Google-Verizon talks). So the carriers need to buy their way into the premium delivery market, by building or buying content delivery services. If Verizon owned Akamai, it could make a boatload on premium-delivery services, without being blackballed by the zealots. Yes, it’s a big price tag, but Verizon can afford it. And if Verizon doesn’t buy it, AT&T will.
ARM Holdings (ARMH)
Business: The leading provider of chips for mobile smartphones and other gadgets like the iPhone.
Market Value: $8 billion
Potential Buyers: Intel
Current Stock Price: $17
Takeout Price: $30Rationale: The next massive wave of growth in devices will be in smartphones, tablets, and other mobile gadgets. The PC business, meanwhile, is increasingly mature. Intel needs to become the leading player in mobile chips. The way to do that is by biting the bullet and buying ARM.
Business: The leading next-generation premium video delivery company.Market Value: $7 billion
Potential Buyers: Amazon, Comcast, Verizon, Walmart
Current Stock Price: $140
Takeout Price: $250
Rationale: One of the biggest tech-media battlegrounds for the next few years will be the ongoing struggle to control the future of video distribution. Netflix is the big winner here, and its new streaming service is the envy of the “over the top” industry (circumventing cable companies and TV networks to provide premium movies and TV shows direct to consumers wherever they want them). Basically, Netflix is the new HBO–except an HBO that is available directly to anyone, instead of an add-on service from a cable company. Yes, buying Netflix will cost an arm and a leg, but there are some huge companies out there with a lot of cash that can afford to do it–including Walmart, which recently blew a few hundred million buying a Netflix-wannabe box company called Vudu.
Image: Associated Press
Business: Software as a service, subscription based distribution of business softwareMarket Value: $14 billion
Potential Buyers: Oracle, Microsoft, Google
Current Stock Price: $110
Takeout Price: $180
Rationale: Salesforce.com is the leader in a whole new form of enterprise application–web-based, software as a service. Salesforce is what PeopleSoft and other enterprise application providers were in the last generation of enterprise software–except that it has the added advantage of being a platform in addition to an application. Eventually, if the last generation enterprise applications companies (Microsoft, Oracle) want to dominate the next-generation, they will have to buy Salesforce.com. That is, if Google doesn’t finally bite the bullet, realize that building a full enterprise sales and service business is outside its core competency, and cut the check first.
BONUS: Research in Motion (RIMM)
Business: The maker of the BlackBerry.
Market Value: $23 billion
Potential Buyers: Microsoft, NokiaCurrent Stock Price: $43
Takeout Price: $30
Rationale: Research in Motion was once the worldwide leader in next-generation smartphones, but it has since been leapfrogged by Apple and Google (Android). RIM’s market share will likely continue to dwindle, but it is still compelling, and big companies that are desperate to recharge their own mobile businesses–Microsoft and Nokia–should snap it up. Sadly, RIM’s current market cap is still huge, especially relative to its long-term prospects, so the stock will likely have to fall a lot more before someone steps up. Once the stock falls to, say, $20, however, Microsoft or Nokia or another player will take it out.