In the past decade, companies such as Microsoft, Amazon, IBM, Cisco, HP, Google and Oracle dominated tech M&A activity and played a major role in the first wave of consolidation. This elite group of companies built empires by cherry-picking the best talent, technology, patents and capabilities that money can buy.
While there is no denying the ongoing buying power of these industry giants, a new wave of buyers is emerging with deep pockets and an appetite for M&A. They’re fueled by the explosion of mobile adoption, social media and local targeting. There are also intensifying competitive dynamics amongst players that are increasingly encroaching on each other’s turf (e.g., Apple / Google).
With interest rates at record lows, cash reserves on hand and a number of very attractive acquisition targets innovating very quickly, the new buyers are poised to make plenty of high-profile acquisitions during the next few years.
Whether you’re a VC investor or an entrepreneur looking for an attractive exit, it’s time to start making new friends in the C-suites of these newcomers. Most of these companies are less than 10 years old, yet have built large businesses by any metric.
They are generating substantial revenues, continuing to grow at incredible rates and are flush with cash, most of which has been raised in recent IPOs or very large private financing rounds. They comprise a new generation of buyers, and some are highly attractive acquisition targets in their own rights. While not all of the following players are ready to advertise their position as heavy-weight contenders in the acquisition ring, some even downplaying how aggressive they can be, their actions are enough to have Wall Street and the rest of us paying attention.
Facebook – This is the new company to be reckoned with. Its every move will be very closely watched by the old guard and, from now on, Wall Street. When news of Facebook’s recent acquisition of Instagram broke, Facebook CEO Mark Zuckerberg wanted to make it clear that this splurge was a rare occurrence. He blogged, “This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users. We don’t plan on doing many more of these, if any at all.” Regardless of how often Facebook decides to use its checkbook, it has entered the public buying market and has tremendous resources, especially after its recent IPO.
Zynga – In the past few years, Zynga has been on an impressive buying spree. It has spent millions of dollars acquiring a variety of gaming companies in its quest for social gaming dominance. After one of its recent acquisitions, Zynga’s Merger Chief Barry Cottle said in an interview with Bloomberg, “We’re sitting in a very advantageous position. We have a significant amount of cash, we have no debt, and we have access to debt to be as aggressive as we need to be.”
Salesforce – With its most recent purchase of Buddy Media for $689 million, Salesforce can no longer be ignored when it comes to M&A contenders. The company has acquired more than 10 companies in recent years in an effort to ramp up its social media offerings. “I know that other vendors, because of our success, are trying to stitch it all together by acquiring at the core,” Salesforce Chief Executive Marc Benioff said according to The Wall Street Journal. “We’re acquiring at the edge.”
Groupon – For a company that did not exist five years ago, Groupon has an impressive number of acquisitions under its belt. The company has acquired roughly 20 companies in the past two years and has plenty of money left in the bank for more with no signs of slowing down. In a recent letter to shareholders, CEO Andrew Mason wrote, “Although there are risks in moving too fast, companies often don’t survive long enough to apologize for moving too slow.”
Twitter – Despite remaining privately held, Twitter has acquired more than a dozen companies since 2010, opening its wallet to acquire at least four companies this year alone. Twitter blogged, “Acquisitions have given us people and technology that have enabled us to more quickly build a better Twitter for you.” While there is little doubt that Twitter will purchase again, there is plenty of industry speculation about whether the company will be bought itself.
Forbes contributor Louis Bedigian wrote, “Whenever a major acquisition occurs, the world scrambles to figure out which companies will be acquired next, how much they will sell for, and who will buy them. If a questionable (and currently profitless) firm like Instagram can earn $1 billion just for having 30 million users, surely Twitter — a growing social media empire with a few hundred million users — could earn several times that amount.”
Outside of these players that have become U.S. household names, there are also the emerging Internet leaders in China, the rest of Asia and the other emerging markets to consider. According to a 2012 study by McKinsey, Internet usage has expanded faster in China than anywhere else in the world:
In December 2011, China had 513 million Internet users, compared with 245 million in the United States. The increasing popularity of the Internet, along with the maturation of online payment systems and enhancements in the reliability of logistics services, has fueled the growth of ecommerce in China, with more than 2,000 companies vying to be the Chinese version of Amazon.
The level of demand for social media in China and other emerging markets puts promising domestic Internet companies in a unique and attractive position for lucrative overseas offers.
The incumbent players are undeniably still a major factor when it comes to the world of M&A; however, they will likely be seeing increasing competition from this new generation of Internet companies.
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