2010/2011 Tech Exit Outlook – data from the Internet, advice from Berlin (Irving)

At the beginning of this year we blogged about the previous decade’s top acquirers of venture backed companies. Cisco was King of the Hill with 48 acquisitions.

The top ten acquirers of venture backed businesses in the noughties were:

1. Cisco Systems – 48
2. IBM – 35
3. Microsoft – 30
4. EMC Corporation – 25
5. Oracle Corporation – 23
6. Broadcom – 18
7. Symantec – 18
8. HP (Hewlett-Packard) – 18
9. Google – 17
10. Sun Microsystems – 16

Of the top ten, there are now only nine left standing after the creation of SnOracle (as ex-Sun staffers call it) and Oracle (as Larry Ellison calls it).

Yesterday I saw this interesting chart that looks at the cash and cash equivalent holdings of the top 72 technology companies in the world. This is useful information as it gives an indication as to the kind of companies that have the firepower to acquire others. There is a fairly significant overlap between the two top tens – six out of nine (ignore Sun now). Interestingly, the pile of cash amassed by the top ten companies on this list would be more than twice the size of the pile of cash that the next 62 companies could muster between them.

Cash and cash equivalent assets for technology companies

The behaviour of these organisations is important then if you want to get an insight into the likely future of M&A activity and the potential exits that venture backed businesses might enjoy. There is not much good news here for VCs who are relying on some hummdinging MoFo exits to make their funds. A £ 200 million pound fund, assuming it ends up with an average of  about 20% of a business on exit, needs to have invested in businesses with a total exit value of £3,000,000,000 to return a modest (even if aspirational for many) 3x money.

Unfortunately, the big corporates are tending to pursue a barbell approach to acquisitions – focusing on picking up small (sub 20 people) businesses with useful core technology (e.g. Google bought DocVerse for $25,000,000 at the beginning of March) or large businesses where they can build customers and revenue. Of the 63 acquisitons by Google listed here, there are only 3 acquisitions are in the range $100-500 million, and 5 of more than this amount. All the rest are sub $ 100 million or undisclosed (and therefore very likely to be sub $100 million).

Food for thought. Now enjoy the musical equivalent of the potter’s wheel… Can you spot the subliminal message?