Deal or no deal with Yahoo!, the software giant faces pressure to close the gap with Google, and acquisitions are the most likely avenue
A day before reports that Microsoft resumed talks to buy Yahoo!, the head of mergers and acquisitions at Microsoft said the company is still angling for a big fish in the online market and has been ramping up its ability to absorb large targets.
Microsoft's purchases have been getting bigger of late, but Yahoo (YHOO), with a market value of $42 billion and likely a higher price tag, would be the largest deal Microsoft (MSFT) has ever attempted. Reports on May 4 said Microsoft had considered buying Yahoo or striking up another kind of partnership with the Internet company, but that talks had stalled. The companies had last considered a tie-up in 2006. Microsoft declined to comment.
Whatever the outcome of talks with Yahoo, the software maker clearly is willing to spend more on purchases. Microsoft's corporate vice-president of corporate development, Bruce Jaffe, says the company has doubled its average acquisition size, to about $60 million, this fiscal year. During the first three quarters of 2007, Microsoft has spent between $1 billion and $1.5 billion on acquisitions, vs. $649 million in all of 2006.
Getting Up to Speed
And the company has been investing in financial, human resources, and IT systems designed to get newly acquired teams up to speed quicker once inside Microsoft. These new processes and computer systems can track on a daily basis how an acquisition is performing and generate reports for the executive responsible for a deal. "The great acquirers have built these," Jaffe says.
If the opportunity arises, Microsoft is also equipped to fold in a big Internet company, Jaffe says. "There's nothing structurally that's preventing us from doing it," he says. "We just haven't found the right company at the right time." Jaffe declined to comment on specific deals. "We'd love to find a way to accelerate the growth of our business in consumer online," both through acquisitions and in-house development, he says. Trouble is, there aren't that many Web companies with reach. "The sample size isn't that large," he says.
And while Microsoft has been one of the computer industry's most voracious acquirers, snapping up roughly 150 companies since 1990, its track record on integrating deals is spotty. It has excelled at grafting small technology teams onto existing products but has struggled with larger buyouts. That may need to change in a hurry as online software leader Google (GOOG) pulls further ahead.
Gaining a Stronger Foothold Online
"They need to do something bigger, faster," says Brian Roberts, senior managing director at investment bank Evercore Partners (EVR), and Microsoft's former head of M&A, who left the company in December, 2005. "From where they're chasing Google at this point, they can't do it organically. It's beyond throwing bodies at problems. It's bringing in new DNA and new technologies and trying to do more faster. Google is a very formidable, very scary competitor."
Microsoft's acquisition of voice-recognition software company Tellme Networks, which closed on May 3, could be a template for future deals. When the transaction was announced in March, Credit Suisse (CS) analyst Jason Maynard said Microsoft paid more than $1 billion (see BusinessWeek.com, 3/15/07, "Microsoft's Expansive Plans for Tellme"). That's a far cry from the $50 billion or so that Yahoo might fetch, but it points to Microsoft's increased willingness to pull out the stops to get a stronger foothold on the Web.
A day before reports that Microsoft resumed talks to buy Yahoo!, the head of mergers and acquisitions at Microsoft said the company is still angling for a big fish in the online market and has been ramping up its ability to absorb large targets.
Microsoft's purchases have been getting bigger of late, but Yahoo (YHOO), with a market value of $42 billion and likely a higher price tag, would be the largest deal Microsoft (MSFT) has ever attempted. Reports on May 4 said Microsoft had considered buying Yahoo or striking up another kind of partnership with the Internet company, but that talks had stalled. The companies had last considered a tie-up in 2006. Microsoft declined to comment.
Whatever the outcome of talks with Yahoo, the software maker clearly is willing to spend more on purchases. Microsoft's corporate vice-president of corporate development, Bruce Jaffe, says the company has doubled its average acquisition size, to about $60 million, this fiscal year. During the first three quarters of 2007, Microsoft has spent between $1 billion and $1.5 billion on acquisitions, vs. $649 million in all of 2006.
Getting Up to Speed
And the company has been investing in financial, human resources, and IT systems designed to get newly acquired teams up to speed quicker once inside Microsoft. These new processes and computer systems can track on a daily basis how an acquisition is performing and generate reports for the executive responsible for a deal. "The great acquirers have built these," Jaffe says.
If the opportunity arises, Microsoft is also equipped to fold in a big Internet company, Jaffe says. "There's nothing structurally that's preventing us from doing it," he says. "We just haven't found the right company at the right time." Jaffe declined to comment on specific deals. "We'd love to find a way to accelerate the growth of our business in consumer online," both through acquisitions and in-house development, he says. Trouble is, there aren't that many Web companies with reach. "The sample size isn't that large," he says.
And while Microsoft has been one of the computer industry's most voracious acquirers, snapping up roughly 150 companies since 1990, its track record on integrating deals is spotty. It has excelled at grafting small technology teams onto existing products but has struggled with larger buyouts. That may need to change in a hurry as online software leader Google (GOOG) pulls further ahead.
Gaining a Stronger Foothold Online
"They need to do something bigger, faster," says Brian Roberts, senior managing director at investment bank Evercore Partners (EVR), and Microsoft's former head of M&A, who left the company in December, 2005. "From where they're chasing Google at this point, they can't do it organically. It's beyond throwing bodies at problems. It's bringing in new DNA and new technologies and trying to do more faster. Google is a very formidable, very scary competitor."
Microsoft's acquisition of voice-recognition software company Tellme Networks, which closed on May 3, could be a template for future deals. When the transaction was announced in March, Credit Suisse (CS) analyst Jason Maynard said Microsoft paid more than $1 billion (see BusinessWeek.com, 3/15/07, "Microsoft's Expansive Plans for Tellme"). That's a far cry from the $50 billion or so that Yahoo might fetch, but it points to Microsoft's increased willingness to pull out the stops to get a stronger foothold on the Web.
Source: www.businessweek.com
No comments:
Post a Comment