BlueTie CEO: A “Frothy” M&A Market For Another Two Years


BlueTie, says on his blog that would-be buyers and investors are beating down his door in a “frothy” market:

In the last eight weeks I have received north of 40 phone calls from venture capital firms and private equity shops. All are offering to play at very high valuations, and many have offered cash if we want to take some money off the table.

Venture capital firms are increasingly being forced to sweeten their offers to compete not only against each other, but against buyers that are swooping in earlier and earlier…

We are in a heated M&A market, that is operating without fear or influence of the broader economic issues. As much press as the sub-prime credit issues and hedge funds have gotten, it does not seem to be influencing decision making in the executive suite. Here’s why:

  • Valuations at the largest tech companies are near 52-week highs, and they all have huge stockpiles of cash. It is in their vested interest to spend on growth.
  • There is a lot of great technology that has been developed in the shadows of the Web 2.0 hype that would benefit from the brand and distribution of a larger player
  • Most entrepreneurs I speak to would prefer acquisition over IPO today. The regulatory challenges are not worth dealing with if you can get IPO prices through M&A

One might ask why David hasn’t taken any of these amazing buyout offers yet. One possibility – he is backed by billionaire Paychex (PAYX) founder Thomas Gollisano, so could survive a depression. David’s more optimistic argument: the tech M&A market will remain hot for another 24 months, fuelled by a race between Google, Microsoft, Cisco and other heavyweights to “own the front-end for the business user on the Web.”  (Translation: prices are going higher.)  Or perhaps he just doesn’t want to sell.

In any case, based on recent data points, we disagree with David and think we’re headed for a tech slowdown and a drop in web advertising, but on this thesis, anyway, it would be nice to be wrong. David Koretz