IPOs feed off of M&A, and plenty of telecom/tech companies united during the first half of 2007 to give the industry a shot in the arm, says Battery Ventures’ Matt Niehaus.
Companies, from service and equipment providers to OSS/BSS outfits, joined forces to create scale, arming themselves to compete against bigger competitors and giving themselves access to more money. The only drawback is that M&A quashes innovation, says Carl Stjernfeldt of Castile Ventures. Employees worry about losing their jobs, rather than developing cool products.
Still, private investors welcome M&A. “It’s very good and healthy — it’s helping the industry get back on its feet,” Niehaus says.
The industry will see more unconventional types of deals, the kind where the synergy isn’t immediately obvious, investors predict. For one thing, transactions predominantly will take place in the quadruple-play arena and, again, in content delivery. Several say they wouldn’t be surprised to see a wireless-cable deal. (Sprint already has been the subject of much speculation, given its association with the large U.S. cable companies.) International activity also will pick up. Vesbridge Partners’ Rod Randall says increasing numbers of U.S. companies will buy foreign entities and vice versa. For example, India’s Reliance Communications just dropped nearly $300 million in cash on Yipes Holdings, an Ethernet services provider in San Francisco.
That’s a perfect example of a deal where the benefits aren’t immediately clear, Stjernfeldt says. “They didn’t buy a hell of a lot. What I mean is, they bought a revenue stream and some customers, but they didn’t buy a network.” But Reliance executives are smart and run their company well, he says, so they will leverage Yipes in unexpected ways.
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