That was the message from Michael Brown, corporate development manager at Facebook, who said last week that the social networking company would look at doing maybe 15 acquisitions in 2011. He added that the targeted companies “will be a mix of talent acquisitions, where we’re looking for people to run important parts of our product [and] who have a really strong vision.”
Brown gave his prediction while participating in a seminar I attended last week called “Startup Exit Seminar: Early Stage M&A,” that was put on by the startup consulting firm VentureArchetypes in San Francisco, at the offices of Greenberg Traurig.
Below is a video of Brown’s response and what the other panelists—from Yahoo, Google and Twitter—had to say when moderator Nathan Beckord, principal and lead consultant at VentureArchetypes, asked how many deals each expect to do in 2011 (The key question begins at the 3:50 minute mark of the video.) Kudos to Brown for being the only one on the panel to answer the question directly. (For a full transcript of Startup Exit Seminar, click here.)
Brown didn’t refer to any recent deals. But if you recall, Facebook in August bought Hot Potato for about $10 million to help strengthen Places, the location-based feature that the social networking giant launched this year. Hot Potato, a New York-based provider of check-in technology, launched just 10 months earlier with backing from First Round Capital and RRE Ventures.
Altogether, Facebook announced eight acquisitions in 2010, including Hot Potato; Drop.io (another RRE Ventures-backed company snapped up for about $10 million); Divvyshot (a photo management tech company that grew out of Y Combinator and was bought for an undisclosed amount); Chai Labs (acquired for $10 million); and Nextstop (bought for $2.5 million). Facebook’s largest purchase this year was the $40 million it paid to take ownership of social networking patents from Friendster.
Facebook’s acquisition strategy of buying small is not that unusual. In looking back at the M&A activity of 2010, the large acquisitions may be what people remember the most.
Sure, there was the bidding war that erupted as Hewlett-Packard and Dell vied for 3PAR, which HP eventually bought for about $2.4 billion. Then there was the deal that almost happened—Google’s $6 billion play for Groupon, which the deal-of-the-day website turned its thumbs down to.
But there were plenty of small companies snapped up this year. My colleague Mark Boslet just finished reporting on a story for the next issue of Venture Capital Journal (subscribers can look for it on Jan. 1), in which he takes a look at the year’s M&A activity.
What Mark found in his research is that there was a wide gap between deals at the top of the market, such as 3PAR, where acquirers paid big dollars and attractive premiums, and those on the low end. Google, for instance, made 40 acquisitions through the first three quarters of 2010. If you take out the three top acquisitions of the year, the remaining 37 it made had an average value of $17 million.
In other words, small acquisitions may be the way to go in 2011. Good news for startups and their VC backers.