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October 15, 2007
Big Big Euro Software Deals - Impact on Startups
Your a:c euro reporter asked a few regular readers for comment on the impact of the large-sized M&A transaction underway among three of Europe's largest tech companies, the thinking being that it isn't great news for startups that are ready to exit (be acquired by those larger Euro companies), mainly because it means fewer potential buyers. But several readers she contacted disagreed. Read on to see who said what.
At the beginning of the last week, the news broke that SAP made a €4.8M bid for Business Objects, merging two of the region's largest software companies, in a mega-sized deal for Europe.
Billion Euro Deals
Two other large deals in the works are Nokia buying Navteq $8.8B, and TomTom's €2.5B bid for TeleAtlas of Germany (its revenues were about €265M). That is a total of €16.1B being invested by European tech heavy-weights.
M&A activity of this size could mean that there is less appetite to acquire fast moving startups - because the big players will be busy integrating their businesses. It also means a net smaller number of potential buyers.
But Marc Brandsma, of corporate finance boutique Chausson Finance in Paris, and is also a seed investor in startup Netvibes, diagreed.
View From France
"We believe that big deals such as these put the market in motion. Smaller players switch to acquisition mode, and the effect down the line is reaching the startups. More fluidity means more opportunities for startups," said Brandsma.
German Market Viewpoint
In agreement with Brandsma was also Rüdiger Fajen ofConsus Partner in Frankfurt am Main, "The more liquidity there is in the market, the better it is for startups," wrote Fajen whose company typically does M&A advisory on mid-sized deals in Germany, it advises hedge funds on German stocks, and it will also assist tech startups on capital raising (which is how we got to know Consus in the first place).
Liquidity influences the activity of venture capital investors, suggested Faen. "If there are no visible exit opportunities through IPO or acquisitions, VCs start to fear they will not have an exit opportunity and invest less," said Fajen.
When investment bankers talk about liquidity, they are talking about money moving between buyers and sellers in a market.
Fajen also mentioned something that we've witnessed before. He calls it the competition effect. At the alarm:clock we might describe it as fear-induced M&A.
"If large companies are buying, mid-sized companies also start to think how they can defend themselves better and faster against their large competitors, which in turn means they themselves look for acquisitions to help them accelerate their development," wrote Fajen.
"So more movement on the large side of the market is usually also good news for the smaller companies," said the Frankfurt-based investment banker.
It can even be seen in the SAP/BO transaction itself, suggested Fajen: "If Oracle hadn't bought Hyperion, which would have been a perfect match for SAP, they probably wouldn't have paid such a high price for Business Objects."
UK and Pan European Viewpoint
Make it three for three against one was Jean Michel Deligny, founder and managing director of Go4Venture, which is specialized in early stage technology corporate finance in the UK and Europe.
He sees the growth in deal size as a positive, a sign of healthy ambition, and good news for startups. "We now have a handful of European players who not only have the cash, but the will, to become aggressive consolidators of their respective spaces. In short startups are not simply stuck with US buyers, for some there are credible buyers at their doorsteps."
The dealmaking shows that European techs have now a level of "ambition and understanding of what it takes to be successful," wrote Deligny whose company has been advising technology firms throughout the boom, bust, and current recovery.
"This is true for the SAP and Nokia [types of companies] in Europe but also smaller startups," said Deligny.
We still think that startups should break out another pack of Red Bull and stay focused on getting big enough to float. But if an M&A exit is desired, the corporate finance advisors believe there is reason to be optimistic.
In fact, in the days that we put this report together, United Internet, the German web portal, online advertising, and ISP giant, announced it had raised (through debt) €500M for acquisitions, further reinforcing their statements about continued liquidity.
Software Sector Viewpoint
And finally, over at Tech It Easy blog, whose authors are close to the entrepreneurial ground in Paris (its originator Jeremy Fain is an ISV business development office at Microsoft's IDEES unit) see the SAP/Business Objects deal as unleashing some new movement in the startup economy. It will likely add some new business angels and experienced startup founders to the market, he posits.
Anyone saying [losing] France’s #2 software vendor is bad for France doesn’t know how it’s been like to work at BO recently.Speak with anyone at Business Objects and you couldn’t avoid talking acquisition by Oracle or SAP or IBM right away, usually the first or second sentence ... the company is 17 years old so it’s likely most stocks have vested and employees will either join other startups to ‘do it again’ (good for startups), start their own software companies (even better for the economy), or, for the wealthiest, become business angels …
Read - Notes on Business Objects acquisition by SAP « Tech IT Easy
Posted on October 15, 2007 07:42 AM | Posted to News And Updates | Permalink
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