HALF MOON BAY, Calif. — The financial crisis, now officially a recession, isn’t slowing some tech giants’ interest in acquisitions. Investment officials from a cross section of tech heavyweights agreed in a panel discussion here that the economic downturn isn’t swaying their interest in doing deals.
“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
(NASDAQ: MSFT) at the AlwaysOn Venture Summit.
Lewin also made a distinction between today 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, eliciting a few laughs from the investors in the audience.
“The economic situation is not disincentivizing us at all,” added Jeff Rusicow, vice president of Global Strategies and Solutions at Symantec
(NASDAQ: SYMC). “We want vibrant, healthy companies with management in place.”
An explosion of data
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
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 (NYSE: 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.”