m-a
Business Management

This month in M&A: Amid carnage China is still hot for tech

This is a contributed piece by Brett Cole of ansarada

  

The continuing carnage on China’s stock market is now seared into the consciousness of all who follow financial markets. It is the latest sign that the world’s second-biggest economy’s quarter century, debt-fuelled economic expansion may be coming to a shuddering halt. 

But is the sea of red on Chinese exchanges going to slow down mergers and acquisitions of technology that China needs? 

Apparently not; given the delicious announcement that the most popular dating and social app for gay men, Grindr, has been acquired by China’s Beijing Kunlun Tech Company.  

Think about it. China, not seen as a country at the forefront of equal rights for gay, lesbian, bisexual and transgender people, is buying a 60% stake in perhaps the most popular app for gay men. The deal values six year-old Grindr at $155 million. The deal is proof that when it comes to business, individual or societal norms fly out the window if the prospective acquisition can be transformational in terms of profit and market share.

“We have taken this investment in our company to accelerate our growth, to allow us to expand our services for you, and to continue to ensure that we make Grindr the number one app and brand for our millions of users,” Grindr’s founder and chief executive Joel Simkhai wrote in a blog post on the Grindr website.

Grindr has two million daily visitors drawn from 196 countries. It had $32 million in sales in 2014, up 29% from $25 million in 2013. Mr. Simkhai and Grindr employees will own 40% of the company.

The Grindr deal confirms China’s voracious appetite for technology. Lenovo famously bought IBM’s personal computer business and acquired Motorola Mobility from Google. A group of Chinese companies bought the maker of image sensors used in Apple phones, OmniVision Technology. Tsinghua Unigroup has bid to takeover memory chipmaker Micron Technology.

All this tech M&A from China underlines that if Chinese companies think the technology works and the business can be bought they are eager to do a deal. Grindr is just the latest example. 

Marissa Mayer 

2015 ended with much talk about the future of Yahoo and the “glamorous, geeky” – according to the New York Times – Marissa Mayer, the search engine’s chief executive who gave birth to twins just last month. 

2016 has started the same way. Ms. Mayer continues to be the target of less than flattering portraits. Her nickname in the company is “Evita,” a reference to former Argentine president Eva Peron, whose glamour and wealth was not enough to save her from a very public downfall. 

Yahoo is expected to announce significant layoffs this month, after more than a third of Yahoo’s work force left last year, leaving a company struggling to remain relevant. Ms. Mayer’s efforts at corporate reorganization have not paid dividends in terms of the bottom line and stock price. 

After the announcement last year that Yahoo’s stake in Alibaba would not be spun off, Silicon Valley is waiting for Ms. Mayer’s latest plan to revitalize or commit to a sale of Yahoo’s core search business.   

In the weeks ahead the spotlight on Ms. Mayer is only going to get more intense. 

US IPO market concentrates venture capital minds on M&A 

If you are an American venture capitalist and want to get out of your still frothy valued start up, ignore the IPO market. 

As of Friday, January 15 there has been not one American IPO, the latest a year has gone without an IPO since 2012, according to Dealogic.  

In 2015 the volume of the US IPO market, $32.9 billion, was the lowest level since 2009, the year after the Lehman Brothers’ bankruptcy sent the world into the great recession. 

US venture capitalists are likely to try and monetize their tech investments through mergers and acquisitions in 2016 rather than spending time on an IPO filing where success looks increasingly less likely given the current volatility in global markets. 

The IPO market and the market for M&A feed off each other. If one is in the doldrums, expect the other to soon feel its effects.

So the Silicon Valley venture capital firms, indeed all venture capital firms, that have invested in US tech have an increasingly narrow window of opportunity to get a deal away to justify their bets on start-ups to their limited partners. In such an environment expect some interesting bedfellows in terms of deals, probably with a Chinese flavor given the country’s voracious appetite for new technology.

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