Non-tech companies are making more acquisitions

By December 17, 2013Exits

Techcrunch has an article up today about the increasing number of tech acquisitions by non-tech companies. Recent examples include:

  • Monsanto’s acquisition of Climate Corporation for $1.1bn
  • United Health Group’s acquisition of Humedica for ‘hundreds of millions of dollars’
  • Under Armour’s acquisition of MapMyFitness for $150m
  • Staples’ acquisition of Runa
  • First Data’s acquisition of Clover
  • Ford’s acquisition of Livio
  • Target’s acquisition of DermStore.com, Chefs Catalog and some Cooking.com assets

The story is simple. Non tech companies are waking up to the fact that tech is the future. As Kleiner Perkins Partner Allen Lee says:

Companies like TJ Maxx, Urban Outfitters and others can easily make a $100 million to $400 million acquisition in the current market, she adds. In fact, earlier this year, Urban Outfitters reportedly did try to buy NastyGal, a fast-growing e-commerce site for young women.

I think this means two things. Most obviously, the range of acquirers is increasing. This is particularly welcome in our focus area of ecommerce where there historically haven’t been many buyers. Secondly, these new acquirers are not used to valuing businesses based on multiples of revenues or paying big ‘strategic premiums’ but will rather pay up for strong fundamentals. That means growth and profitability.

That’s another reason to build businesses for the long term.

  • David Brown

    Nic, I thought that one of the big constraints for “non-tech” businesses is that they trade around 10x EBITDA which limits their ability to buy high-growth, loss making startups as a typical startup will negatively impact their profit and their financial model can’t deal with the long wait before the acquired startup is generating profit. Is this still true?

  • http://www.theequitykicker.com brisbourne

    There’s still truth in it. That’s why I say that revenue growth and profits are important if you want to sell to non-tech companies. That said, I think they are warming to the idea of accepting earnings dilution and for multi-billion dollar market cap companies a deal in the low hundreds of millions doesn’t hurt them that much.