What The 2008 Slowdown Could Mean For Tech M&A

It seems that every 4 year election cycle brings with it some type of economic challenge or slowdown. 2008 seems to have all those same vibes, with rumblings of a possible six month or so recession. You'd think the incumbent political parties would have figured this out by now and take steps to make sure the economy is on the rise going into a national election year. Maybe our presidents really have a lot less to do with the economy than we give them credit or blame for.

The sub-prime loan and real estate market meltdowns make the load 2008 carries on it's shoulders a pretty big burden so early in the year. New GigaOM staff writer Stacey Higginbotham posted her views about The 451 Group's predictions of slower growth in Tech M&A during 2008. The most notable number that stood out are that a "mere 13 percent (or four times as many as last year) are forecasting a decline in their [banking] business."

Stacy also indicates a possible end to the Web 2.0 gravy train due to both the slowdown in M&A which should bring acquisition prices back from the stratosphere and ground them on more realistic revenue multiples, in particular acquisitions by Microsoft. That's possible but I think there are still some big "insane" factors that will still carry through 2008.

First, I don't see any slowdown in investments for web 2.0 startups. Web 2.0 is a pretty broad category, encompassing social networks, and web based and on demand software applications. That's the future of software, not just a fad, and we'll likely see more innovation to come from entrepreneurs in these markets. Maybe not "yet another social networking site" kinds of initiatives, but mashups, and more software apps. There's only so many me-too opportunities and at some point it's really too late for me-too's to have much fun at the market winners party.

Next, and just as important, big players will continue to pay insane amounts for acquisitions that let them make a move in the Microsoft vs. Google game of leap frog. We still have moves being made for catch up, leap frog and playing not to lose motives.

Still, consolidation will continue in markets like network security (I just posted about the uphill and likely to fail battle of NAC Vernier Networks attempt to yet again remake itself.) Security is still in it's consolidation phase so failed companies as well as more acquisitions are just part of the market's natural order.

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