Tech firms not looking far for new acquisitions
If you're a development startup primping for acquisition, your ability to attract suitors may ultimately depend less on what you do than on where you do it. Technology companies often focus their acquisition strategies on firms close to home, according to new data issued by 451 Group, a researcher that tracks M&A activity--the trend itself isn't necessarily surprising, but the prevalence of the behavior might raise some eyebrows. 451 Group reports that since the beginning of 2002, publicly-traded tech firms based in California have purchased 1,994 private companies, 36 percent of which were also based in the Golden State--that's roughly three times the rate that publicly-traded East Coast buyers scooped up California companies. East Coast firms instead targeted acquisitions in their own backyard, making other East Coast companies the target of 32 percent of their 2,010 acquisitions over the past seven years. For that matter Texas companies buy more private firms from their home state, Washington companies buy more firms from their home state, and so forth.
The 451 Group study indicates that the pattern continues to hold true when public tech companies acquire other public firms. Out of 386 such acquisitions since 2002, California companies acquired other California companies 40 percent of the time, with East Coast companies representing just 18 percent of their purchases. And among 385 transactions over the same span, publicly-traded East Coast tech companies bought other public East Coast organizations 29 percent of the time, while California firms represented just 20 percent of their buys. "If you are buying a mobile application company and there are 100 of them, why not buy the one close to your headquarters?" says 451 Group analyst Thomas Rasmussen in an interview with The Wall Street Journal. "It makes sense that corporate development and venture capitalists would target their home crowds."
Although M&A experts have long maintained that deals aren't made or broken because of cultural factors, that seems to be changing--at the recent Nokia Developer Summit, the handset giant's director of strategy and business development Ed Simnett said that prime acquisition possibilities match four criteria: 1.) They must fit into Nokia's committed roadmap; 2.) They must be profitable; 3.) They must come with superior management teams; and 4.) They must fit with the Nokia culture. "Acquisitions are really about people," Simnett said, an assertion later echoed by Nokia Growth Partners partner Bo Ilsoe, who declared "This is a people business. We look at a company's team, their technology, the overall market and our exit strategy." In other words, creating a superior location-based solution or social networking app is just part of the equation--physical location and social skills are increasingly critical factors as well. -Jason