NEW YORK (TheStreet) Tech M&A declined substantially this quarter. Dell
RRE Ventures managing partner, James Robinson IV, attributes the decline in activity to market uncertainty surrounding "DC cliffhangers." Due to the presidential election and fiscal cliff negotiations, end of the year deal discussions were put on hold. But as the markets regained stability, deal talks resumed. Looking forward, Robinson says "M&A is coming, and big."
Frank Aquila, co-head of Sullivan & Cromwell's global corporate practice, is also optimistic about tech deals. "Look for a significant number of tech deals over the next year or so," said Aquila in an email. "As the larger players seek to better position themselves to compete, they will look to make both significant strategic acquisitions as well as bolt-on acquisitions."
Bankers are also predicting an uptick in tech M&A. Chet Bozdog, global head of technology investment banking at Bank of America Merrill Lynch, says "we expect 2013 to be a big year for tech M&A due to CEO confidence levels, the amount of cash on corporate balance sheets and the existence of reasonable valuations in the marketplace." Jeffery Bistrong, managing director at Harris Williams, is also optimistic about technology deals, particularly in the software and healthcare IT spaces.
So which tech companies are in play? Industry experts tell TheStreet that the following companies are sensible or likely acquisition targets.
Recently appointed Gilt Groupe CEO, Michelle Peluso, is said to have the right credentials to take the company public. When asked about IPO prospects, Gilt execs say that they are on that track, but Peluso says she's not ready to commit to a timeframe. Yet the markets have rebounded and Gilt's core businesses became profitable in December, so why wait? Perhaps the company is open to alternative options.
Gilt's recent turn to profitability may make it a more attractive target to strategic acquirers. Corporations like Macy's
Vice Chairman Susan Lyne didn't rule out an acquisition, when interviewed in 2011 while she was CEO. Lyne said that though "anything can happen," she talked up the merits of being a private company. At the end of the day, most companies would sell themselves for the right price.
It's possible that Groupon's
Gilt has already raised money at a billion dollar valuation. The e-commerce site has $221 million in venture funding, dating back to 2007. If Gilt doesn't get a great offer, an IPO may be their only option for repaying their investors in a timely fashion.
Foursquare is venture capital backed, so an IPO or an acquisition would be the standard ways to repay their investors, but an IPO seems unlikely. Foursquare has struggled to make a profit in its existing business model, and only generated an estimated $2 million in revenue last year. Without a game plan, the profit problem could be unattractive to public investors.
The company has raised capital based off a $760 million valuation, so private investors must be optimistic about the company, and if it could sell itself. A number of acquirers could use Foursquare to create synergies. With over 30 million users and 3 billion check-ins, Foursquare has data points that could be an invaluable metric for advertisers. Its platform could also be integrated to enhance an existing social media or internet service. There's also a big push to mobile these days, and Foursquare is already present there. Sam Hamadeh, CEO of private research company, Privco, says the the company "could be worth more as part of a bigger buyer's play on local mobile ads and commerce. Groupon acquiring Foursquare for example wouldn't be out of the question."
Foursquare CEO Dennis Crowley, however, may be wary of an acquisition. He's already experienced a failed acquisition, having sold Dodgeball to Google
There is generally a lot of consolidation in the e-commerce space. Like Gilt Groupe, Etsy is a venture-backed company that quickly made a name for itself. With over 25 million members and nearly $900 million in 2012 sales, Etsy's prospects seem promising. Granted, most of that money doesn't go to Etsy. Buyers and sellers convene in an eBay-like fashion.
The popular destination for handmade and vintage goods could easily integrate with a company like eBay
It's also worth noting that CEO Chad Dickerson cast doubt on IPO plans, when he spoke at a PandoMonthly event in January. Although he didn't mention an acquisition, it sounded like he was open to alternative methods of financing, citing concerns about the costs and scrutiny associated with being a public company.
Etsy started financing rounds in 2005. If investors aren't provided with returns soon, it's possible they could get antsy with Etsy.
Like Gilt Groupe, Square is often cited as an IPO candidate. Founder and CEO, Jack Dorsey, hasn't ruled it out, but Square might make a better acquisition target.
The mobile payment service has received $341 million in funding, so Square is heavily venture-backed. Square's most recent financing has valued the company around $3.25 billion, but a strategic acquirer like Visa
PrivCo's Hamadeh says an acquisition is likely. "Square will not do an IPO because from its inception it is a company that was built to be bought. Square has achieved impressive revenue growth, but through profit-less prosperity." Hamadeh makes an interesting point about Square's current business model. "Square's strategy has been all about generating increasing mobile payment volume at flat fees (no swipe fees) which by definition leads to adverse selection: that is, the merchants with the lowest average check price will use Square as it's cheaper, while those with large average check prices use a traditional banking solution tied mobile swipes using a mobile card processing device."
Square is still gaining traction, so it's reasonable that the company could hold out for a better valuation in 2014. But with NCR, GoPago, LevelUp, PayPal and Bank of America's Mobile Pay all entering a similar space, there are no guarantees that they'll be a long-term market leader. With Dorsey on board (he co-founded Twitter), and a Starbucks
Compuware was cited by multiple bankers as a likely acquisition target. Recent reports suggest that there's buyout interest in the enterprise software company. Although Compuware spurned Elliott's propositions, there's said be private equity interest.
Jeffery Bistrong of Harris Williams predicts that there could be consolidation amongst Compuware and others in this space, which includes Red Hat
Software is expected to continue to see a lot of acquisitions, as the industry has seen substantial M&A activity in recent years. The outlook for deals remains strong, with Bozdog saying "software is likely to be a very busy sector" this year. --Written by Katie Roof in New York--
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