M&A in the technology, media and telecommunications (TMT) industry is surging due to a variety of trends, including the soaring popularity of smart phones, tablets and other mobile devices, as well as the move to cloud computing. The sector is also benefitting from the cost-cutting measured induced by the recession that resulted in many companies underinvesting in research and development. For many companies today, it is cheaper and faster to buy rather than build technology.
For nearly a decade, e-commerce has plodded along, but now an explosion of mobile commerce driven by changes in consumer behavior is fueling deals, says Rich Lawson (pictured), CEO of Palo Alto, Calif., private equity firm HGGC (formerly known as Huntsman Gay Global Capital). HGGC recently invested in MyWebGrocer Inc., which provides digital marketing services for grocery stores. The firm also sold Hybris Software, which develops e-commerce software, to SAP AG (NYSE: SAP).
Yahoo Inc.'s (Nasdaq: YHOO) purchase of New York microblogging service Tumblr Inc., which closed in June, sums up several trends in tech dealmaking. It capitalizes on the growing use of mobile devices and, by bringing in entrepreneur David Karp, demonstrates the move toward talent acquisitions, which lies at the heart of CEO Marissa Mayer's M&A strategy. Tumblr also marked the Internet company's fourth biggest purchase.
Another recent acqui-hire made by Yahoo was Rockmelt, a venture capital-backed startup that aimed to reinvent the Web browser. Yahoo used the purchase, reportedly for between $60 million and $70 million, to take on Rockmelt developers Tim Howes, formerly of Netscape, and Eric Vishria, formerly of OpsWare.
A slew of tech deals are expected in financial services as banks succumb to regulators around the globe to divest non-banking assets. To take advantage of the assets coming to market, Doug Bergeron, former CEO of VeriFone Systems Inc. (NYSE: PAY), and Chicago private equity firm GTCR LLC, who teamed up on VeriFone, recently reunited to form an ambitious company called Opus Global Holdings LLC.
Headquartered in Palo Alto, Calif., Opus plans to buy financial tech companies and expand them internationally. "The existing financial technology and payments ecosystems are rapidly evolving but remain highly fragmented with limited interoperability and little opportunity to leverage enterprise-wide data," says Bergeron. "We see an opportunity to successfully consolidate and globalize best-in-breed products for worldwide deployment while leveraging data across applications. We intend to assemble a leading, global financial technology company, and to develop a worldwide distribution network of partners, distributors and employees."