Because of the size of Silicon Valley and the volume of money raised and numbers of companies being bought and sold every week, Europe doesn’t often seem to be as exciting a space for tech mergers and acquisitions (M&As) despite the evidence, such as Microsoft’s acquisition last year of Skype, which originated in Sweden, for US$8.5bn.
And let’s not forget Yahoo!’s acquisition of 17-year-old Londoner Nick D’Aloisio’s app firm Summly last week, for a rumoured US$30m.
We had a taste of this in Ireland a few years ago, when then Limerick teenagers John and Patrick Collison’s start-up Auctomatic was acquired by Canadian firm Live Current Media for US$5m (€3.2m) when the brothers were just 17 and 19, respectively. Now 21 and 23, John and Patrick Collison’s latest Silicon Valley-based e-commerce start-up Stripe has attracted investment from Elon Musk and Peter Thiel and has been informally valued at US$1bn by SecondMarket.com.
In Ireland, tech M&A activity was pretty quiet during 2012, with just five deals done during the year, according to William Fry’s recent M&A report, which forecast 2013 to be an altogether busier year due to the amount of venture investment going into Irish tech firms.
For Peter Globokar, the US is still pretty much where the lion’s share of tech M&A activity takes place. Globokar, managing director of London-based investment banking firm Mooreland Partners, was in Dublin recently to advise Irish software companies on M&A activity and strategy.
He has advised on more than 28 M&A transactions across all tech sectors in the past 12 months alone, including Google’s acquisition of Ukrainian face recognition company Viewdle, Nokia’s purchase of Swedish imaging company Scalado, and Intel’s acquisition of parts of HTML5 software company appMobi. Among Irish M&A activity that Globokar has been engaged in have been the sale of Dublin cloud software firm Vordel to Axway for an undisclosed sum, and the sale of NewBay Software to RIM for US$100m. RIM (now BlackBerry) subsequently sold NewBay at a loss to mobile cloud operator Synchronoss for a reduced sum of US$55.5m in cash.
Success rate of M&As
According to Globokar, not all M&A deals go easy and there is typically a 56pc success rate in the industry. “Some companies don’t find buyers because they are often in the wrong place at the wrong time, with the wrong strategy and the wrong people. Companies simply don’t get sold because they don’t have customers and strategically they are not relevant.
“Finding a buyer shouldn’t be like finding a needle in a haystack but it is.”
Globokar said tech M&As, like any other sector, are fraught with risk. But at present, technology is where much of the action is.
“Big companies like Google and Apple are buying companies all the time, mostly for talent. Over the last two years, Google did about 40 transactions and Facebook did 20. But that’s a very small number compared to the amount of inbound traffic – Google, Apple and Cisco would get between 30 and 40 enquiries a week from people wanting to sell their companies.”
I asked Globokar what are the typical reasons for tech giants like Apple or Google buying start-ups. “I don’t believe they are defensive plays, rarely acquisitions in the tech market are about killing your competitor. The much more fundamental thing is people and expertise with the right amount of technology and intellectual property. What drives deals are people, excellence in innovation and the sheer ability to create something.
“Often when Google or Apple buy a company, they don’t retain the product, they take on the people and the IP and then they create a new product.”
Globokar said that traditionally in the business world, companies are bought or sold for their profits. “Technology M&A is about buying to support your road map, customers and revenues. It’s much more dependent on internal road maps and gaps the acquiring companies need to fill.
“The harder part really is for the companies that are being acquired. They don’t often have insight into that road map or their destiny post-acquisition. The large companies aren’t in the habit of telling investment bankers like me entirely what they are up to, either.”
He said that the number of global deals in tech M&A were flat between 2011 and 2012, with more than 3,800 deals concluded each year.
The large balance sheets of tech giants suggest plenty of room for this kind of activity. “Apple has US$135bn sitting in its bank account, Google has US$50bn, Oracle has US$33bn and Microsoft has around US$70bn in the bank.
“Not everything needs to be spent but the option is available.”
I asked Globokar about valuations put on companies. Entrepreneurs go to great lengths and risk to start a company and the M&A experience can be an emotional roller-coaster.
“Most valuations aren’t actually disclosed. If Apple spent more than US$200m on a tech company it actually doesn’t need to disclose the fact. Some 90pc of transactions in tech M&A are small transactions and very few actually make the headlines. The number of tech companies sold in Europe for more than US$50m last year you can count on one hand.”
Globokar categorises deals in the tech M&A space as: ‘ugly’ where the seller is spending a long time trying to find a buyer and that’s because the product isn’t relevant or competitive; ‘good’ where typically it takes six to nine months to conclude and the product is relevant and attractive; and ‘stellar’ where buyers are knocking on the door and “they need this now and not tomorrow.
“Those are few and far between,” Globokar pointed out.
I asked Globokar what attracted him to tech M&A. “It’s the people. I like working with driven entrepreneurs who want to get things done. I love working with companies that are developing the things that people will use tomorrow. I definitely have a passion for people in the technology space and the technology itself.
“On a more personal level, the challenge is to go in and make something happen and that is not as easy as it sounds. M&A is a very disruptive exit strategy, and you have to be motivated to go through the amount of stress and offer the support the sellers need.”
I asked him to describe the stress. “We’ve situations where the day before signing an agreement a huge tech corporation will turn around and say they’ve changed their mind after spending millions on due diligence.”
As a result Globokar has just one creed: “A deal is only done when it is closed, and not before.”
A version of this article appeared in the Sunday Times on 31 March