LET’S MAKE A DEAL!
Tech firms spent record $41.1 billion in cash on buying spree
When it comes to the Bay Area’s biggest firms, 2016 could be labeled “The Year of the Incredible Disappearing Company.”
LinkedIn? Bought by Microsoft for $26.2 billion.
SanDisk? You might still use memory cards with its name on them, but Western Digital scooped up the company for $15.6 billion.
NetSuite? Oracle Chairman Larry Ellison already owned around 40 percent of the cloud-computing software company when Oracle reached a deal to buy all of NetSuite for $9.1 billion last year.
For the SV150, this newspaper’s annual ranking of the region’s biggest publicly traded companies based on revenue, 2016 brought a flurry of acquisitions that stood out even by the ever-active deal-making standards of Silicon Valley and the Bay Area.
The deals enabled some of the world’s largest technology companies to innovate by acquisition. By buying smaller firms, they are able to bolster
their products and services without having to create them from scratch.
SV150 companies spent more of their own cash last year on acquisitions than at any time in at least a decade.
Altogether, 18 companies on the SV150 list were acquired last year. That’s twice the number bought in 2015. And the sizes of the deals were as varied as the companies themselves.
Fairchild Semiconductor, the chipmaker that arguably put the silicon in “Silicon Valley,” was purchased by ON Semiconductor for $2.53 billion.
Adobe Systems scooped up Emeryville-based brand advertising software maker TubeMogul for $561 million.
LeapFrog Enterprises, also from Emeryville and whose electronic games and products are known to almost any parent with a small child, sold itself to rival VTech for $72 million.
“When you’ve built a business of substantial value, the chances of you saying you can reduce risk and harvest a lot of value for your shareholders by selling can make a lot of sense,” said Rishi Garg, of Menlo Park-based investment firm Mayfield, and former head of corporate development at Twitter and Square.
SV150 companies buying other companies last year ponied up $41.1 billion of their own money to finance acquisitions. That figure blew past the $37.8 billion in cash used to fund deals, back in 2011. Those cash figures don’t necessarily represent the total amount paid for companies, however, as deals are often also financed by the assumption of debt, note offerings and stockbased transactions.
“What this list says is that there is a tremendous amount of consolidation among legacy businesses, in particular,” Garg said. “You have some winners and some losers. Some (companies) that continue to innovate, and some that are fine on their own, but might benefit being part of a larger entity.”
Silicon Valley has evolved from the days when old fruit orchards once surrounded the campuses of an industry largely concentrated in Santa Clara County into a technology economy that now extends up into San Francisco and into the East Bay. And any time a company is bought, it evolves as well. Layoffs are always a possibility as companies consolidate, though many firms are often loath to clarify such plans until absolutely necessary.
Companies getting acquired, and the employees who remain, may also have a hard time finding their purpose within a larger organization.
“The issue is that many firms generally become overwhelmed by the firm acquiring them,” said Rob Enderle head of technology research firm the Enderle Group and a longtime tech industry analyst. “Retention and motivation for key people can become problematic retention, and the change that is hoped for rarely occurs.”
Last year’s deal making occurred as Silicon Valley’s biggest companies achieved new records for profitability and productivity, but also hired fewer employees. Sales were sluggish, dragged down by Apple, which in 2016 no longer served as the buoyant force lifting collective sales numbers.
Still, the SV150’s mixed performance didn’t deter investors: The group’s collective market value skyrocketed last year to $3.5 trillion, a level not seen since the height of the dot-com bubble nearly two decades ago. And as market values rose, so did the interest in making acquisitions.
In one deal, the buyer decided it liked the name of what it bought more than its own. Rovi, which licenses digital program guide software and other technologies to consumer electronics makers, acquired DVR pioneer TiVo of San Jose for $1.1 billion and took on the TiVo name.
“We know this will benefit them (our customer businesses) by bringing more value to their relationships with consumers,” said TiVo Chief Operating Officer Pete Thompson.
“TiVo’s legacy of innovation in DVR functionality across set-top boxes, tablets and mobile devices naturally complemented Rovi’s signature capabilities in guides, personalization, advertising, analytics and cloud services.”
Deals involving older tech companies can show how acquisitions have evolved and where Silicon Valley is headed.
“What’s going on is a new phenomenon, in my opinion,” said Ed Batts, global chairman of mergers, acquisitions and private equity at the law firm of Orrick, Herrington & Sutcliffe. “The companies that are left are maturing, their margins are eroding, and that’s causing them to look at how to grow their businesses and do something they can’t do organically.”
Enderle said that what drove the buying binge for many Bay Area companies in 2016 is like what happens to many people after their 40th birthday: Middle age begins. And with that, there remains a near-fervent need to at least feel young, nimble, vital and relevant.
“Many of these companies have lost much of their startup attitudes and have moved from being willing to take risks to managing expectations,” said Enderle. “SanDisk made up for Western Digital being slow on flash. TubeMogul helped move Adobe more aggressively into ad measurement and beyond just creation.”
No deal involving the SV150 in 2016 was bigger than Microsoft, located near Seattle, buying LinkedIn, one of the bestknown names in social networking and the Bay Area. The software maker that helped turn the personal computer into a consumer necessity more than 30 years ago made the largestever acquisition of a purely internet-based company.
Neither Microsoft nor LinkedIn would comment to the Bay Area News Group about changes implemented at LinkedIn. Instead, Microsoft referred to a statement that LinkedIn CEO Jeff Weiner posted in December, after the deal was finalized.
“We’ll continue to remain focused on growing LinkedIn and creating value for our members and customers,” Weiner said. “Our day-to-day operations will essentially remain unchanged.”
Acquisitions of SV150 companies have also stretched into the first half of 2017. Analog Devices completed its $14.8 billion purchase of Milpitas-based chipmaker Linear Technology, and Hewlett Packard Enterprise finalized its $1 billion buy of Nimble Storage.
“I see that activity continuing this year as more small and large firms, who have important technologies and legitimate growth plans that can fit into the strategy of the big companies, will either merge or be acquired,” said Tim Bajarin, head of research firm Creative Strategies.