Channel Vendors Still Interested in Mergers and Acquisitions

Company executives seek "vibrant, healthy" companies with stable management as potential merger-and-acquisition targets. New opportunities in technologies such as SaaS and cloud computing help drive the M&A trend. Acquiring new customers is a major consideration.

The slowing economy isn't stopping channel vendors such as Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), Google (NASDAQ:GOOG)  and Symantec (NASDAQ:SYMC) from seeking out potential merger partners and acquisition targets.

Leading executives from several top channel companies said this week at a technology forum that the economic slowdown hasn't snuffed out interest in mergers and acquisitions. Their comments come during a time when some specialized reseller business are also coming into play. HP, for example, acquitted integrator EDS earlier this year. Privately funded startup Sparxent has been looking to acquire VARs with particular expertise in specific markets.

For their part, channel vendors are being cautious about potential mergers and acquisitions. "We won't shy away from deals because of the economic climate, but we won't get into a business we don't want to be in," said Dan'l Lewin of Microsoft at the AlwaysOn Venture Summit in Half Moon Bay, Calif.

Lewin also made a distinction between the current slowdown and the dot-com bust earlier in the decade. "This is a little different than the dot-com bubble," he said. Echoing comments made by others on the panel, Lewin noted many of today's Internet startups are more focused on providing value and generating revenue than the earlier dot-com crowd was. "You don't see as many companies with 150 people, with ten on a business development team swapping nothingness," he said..

"The economic situation is not dis-incentivizing us at all," added Jeff Rusicow, vice president of Global Strategies and Solutions at Symantec. "We want vibrant, healthy companies with management in place."

Rusicow pointed specifically to the explosion in data and information as opportunities for investment. "In the next five years, the world will see a six-fold explosion of data," he said. "And a lot of that's unstructured data, which is growing from about a quarter of the data out there today to about two-thirds in the next five years."

He also said PCs are no longer the dominant paradigm. Instead, "endpoints" of all kinds – mobile devices, smart phones, etc. – are where the action is. "With SaaS and cloud computing, the end point device is an access point, but not the center of the universe. So it's no longer a question of how to protect your laptop, but how to protect the data," he said.

Even with a weak economy, David Lawee, vice president of corporate development at Google, said companies looking for investment or to be acquired, aren't necessarily cheaper than they were a year or two ago. "There still can be a dislocation of people's expectation of their company's worth versus what a third-party objective source might value it at," he said.

"From my vantage point, there are an enormous number of companies in financial distress looking for some positive outcome. It's really sad, because in another environment they would succeed." That said, Lawee and other panelists said they aren't looking to pick up firms on the cheap facing bankruptcy. "We want the people," he said.

Claudia Fan Munce, managing director of IBM's Venture Capital Group, said one way they evaluate whether an investment or acquisition is warranted is if the company already has paying customers. "Customer validation is important," she said. "IT spending is very limited now."

She also said simply pitching "the greatest thing since sliced bread" won't cut it with IBM  "You really have to do your homework in figuring out what value you bring to our portfolio."

Sun Microsystems (NASDAQ: JAVA) has seen its own fortune decline along with the larger economy in recent years. Brian Moriarty, Sun's vice president of corporate affairs, said his company is still interested in doing deals but he admits negotiations are tricky in the current climate. "It makes negotiations more difficult because we can't see the future as well as we could 12 months ago," he said.

Agreeing it's rare to pick up a firm in or near bankruptcy, Moriarty said there are times it makes sense: "When what they have is a critical IP (intellectual property) and you don't necessarily need the team."

Honesty in dealings was another theme among the panels. Too often companies will try and hide problems that are likely to come out over the course of due diligence. One example he gave of a company needing to be forthcoming is when it doesn't immediately reveal a great feature or product was designed by someone no longer at the firm.

"At the end of the day, you're coming to work for us and we need to know if we want you as employees," said Lewin. "We know every company has warts and ugly things so instead of wasting everyone's time be clear up front because everything surfaces."

(This article was adapted from Internetnews.com and written by David Needle.)

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TAGS: Google,Microsoft,Sun Microsystems,HP,mergers and acquisitions



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