Assessing the Best M&A Opportunities for 2011

5/2/11

As 2011 nears its midpoint, we’re now in a position to see how the recession-era and follow-on consolidation trends have impacted middle-market and growth-stage mergers and acquisitions.

Large blue-chip technology companies, both old and new, have spent the better half of the past decade chasing the latest fads to generate growth and keep up with the innovation of Google, Facebook, and other search, social media, cloud computing, and mobile technology trends. No one, it seems, wants to be left behind. This has resulted in big dollars chasing big dreams; and many, if not most, of these digital hopes and aspirations have yet to pay off.

Despite the checkered track record, however, this hasn’t been all bad for the entrepreneurs of (and investors in) early- and growth-stage companies. We’ve seen many high-profile exits spurred by corporate investments in search of the next innovation, a technology upgrade, or greater market reach. But even though they’ve made a host of deals, a number of large technology companies have ended up losing a bit of focus on their core businesses in the process, hoping that a late investment will make up for a lack of foresight or internal innovation.

Cisco Systems, for example, purchased Pure Digital’s Flip camcorder division for $590 million in 2009, but it just announced it was shutting it down because the Flip has been overtaken by new-generation technologies such as the smartphone. But the shutdown appears to also be the result of Cisco’s refocus on its “network-centric platform strategy.” Put another way, Cisco is getting back to its core business and the products that made it a leading global technology company.

The Flip story is a cautionary tale. It tells us that the acquisition model must be shaped proactively and strategically; it can’t be reactionary and impulsive—that is, done just to keep up with the latest trends—and it can often lead companies outside of their core competencies.

Another common postrecession scenario has seen many sector leaders consolidating with other top companies or competitors. The key question here is whether this will have a negative impact on the exit opportunities for investors and entrepreneurs alike as large potential acquirers with cash change focus and zero in on their equals rather than on the latest up-and-coming technology.

This trend may impact the M&A activity involving large enterprises acquiring … Next Page »

Taft Kortus is a partner in the technology and life sciences group at Moss Adams, an accounting and consulting firm based in Seattle. Follow @

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