The 451 Groups Expectations for 2009: Bleak
Uncertain financial outlooks from Google, Intel,
Cisco, Nokia and Oracle could impede acquisitions by these companies, which
would have to deal with integration risks.
Expect tuck-in or "bolt-on" acquisitions, or low-risk deals that allow companies to sell technology developed by a startup into their existing customer bases, as opposed to "transformative deals" that get them into new markets.
Startups looking to weather the brutal financial storm under the wing of a larger company should take note here. If you're going to sell out, sell out early in 2009.
Gartner Research analyst Matt Cain recently told eWEEK that while the market for enterprise social software will see some consolidation in 2009, not every startup looking for a home will find one.
"It's a game of musical chairs," Cain said. "If you're going to find a home, do it early because three years out there may not be a lot of homes left. There's some pressure to cash out early."
Indeed, Daly said with venture dollars getting even scarcer, startups that are still burning cash will face even more pressure to take a deal. Meanwhile, quality companies will separate themselves from other vendors more quickly than during a time when business is booming.
GigaOm's Om Malik summarizes The 451 Group's outlook. This includes the sell-off of non-core businesses by large companies (Nokia just sold off its security appliance business to rival Check Point), more unsolicited bids, more venture-backed companies trying to buy out publicly traded competitors and, of course, lower valuations for 2009.
"In our survey of corporate development officers, nine out of 10 said they expect prices of private companies to decline next year," Daly wrote. "Specifically, 42 percent said valuations would 'decline substantially,' with 45 percent predicting they would 'decline somewhat.'"
The expectation of valuation decline was consistent with what corporate development executives from Google, Microsoft, IBM and Sun Microsystems said during a panel in Silicon Valley earlier in December.