San Francisco: Silicon Valley companies looking to put their cash to work may drive a wave of mergers this year, bankers and venture capitalists say.
Companies are eager to make acquisitions because many of them have cut research budgets, says Robert Ackerman, founder and managing director of Allegis Capital in Palo Alto, California. That means they’re not as able to fall back on their own ingenuity to fuel growth. More businesses are relying on acquisitions to find their next new product or service, he says.
“The product cabinet is bare, but the market continues to move forward,” Ackerman said. Wherever you see innovation sprint ahead, companies will have a product deficit, and will look to fill it.
Google Inc., based in Mountain View, is currently one of California’s most acquisitive companies, buying at least five businesses in 2010. It agreed to buy Picnik Inc. last month, acquiring online photo-editing tools. Its purchase of DocVerse provided it with software that lets people share documents over the Internet. The value of the deals wasn’t disclosed.
The state’s largest single deal this year was Shiseido Co.’s purchase of San Francisco-based Bare Escentuals Inc. for around $1.7 billion (Rs7,667 crore).
Buying spree: The Google headquarters in Mountain View, California. Ryan Anson/Bloomberg
California deal-making plummeted after 2007, when at least 2,670 transactions totaled almost $254 billion. So far this year, there have been around 530, worth $16.7 billion. That’s a higher number than in the first three months of 2009, though the value was greater in that year-ago period, at around $30 billion.
Local acquisition targets include Santa Clara’s McAfee Inc., Tibco Software Inc. in Palo Alto and Cupertino-based ArcSight Inc., according to Brent Thill, an analyst at UBS AG in San Francisco. McAfee and ArcSight both make programs that protect data, which could be more valuable as cyber threats mount. Tibco’s software helps programs of all kinds share information.
Goldman Sachs Group Inc. also cited San Francisco’s Salesforce.com Inc. and Palo Alto-based VMware Inc. as possibilities—though those companies aren’t the most likely targets, the firm says. Salesforce.com makes online customer relationship software, while VMware sells so-called virtualization programs, which help computers run more than one operating system. Representatives from all the targets declined to comment or didn’t respond to messages.
Rochelle Garner contributed to this story.