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Is eBay/Skype Just The Beginning for Tech Carve-Outs?

There’s some tech industry rumbling that’s gotten louder with the news of eBay’s Skype and StumbleUpon spinoffs. Once-acquisitive tech companies are taking a harder look at whether their subsidiaries make sense, with an eye toward possible sales. It may not ultimately lead to increased divestitures, but the pace of analysis on the topic has, as one banker said, “picked up big time.”

Two questions: Which companies should divest what, and who are the buyers?

An industry banker I spoke with proposed Sterling Commerce as one spin-out target. The electronic data interchange business was purchased by AT&T in 2000. It’s a decent, well-run business that is not core to AT&T and would be valued differently on its own, the banker said.

There’s also’s cloud computing business, called Amazon Web Services. The unit’s value is not reflected in’s stock price, the banker said. Even Lockheed Martin, the defense/security company, has assembled a group to analyze its tech-related businesses and determine whether they are warranted, he said.

And of course, it’s not surprising that someone would suggest eBay unlock additional value by spinning off Paypal next, as its rapid growth is being retarded by its mature (read: slower) parent company.

That companies are considering divestitures makes sense — businesses are reevaluating their plans across the board during the recession. But these tech companies are different, because they’ve voraciously acquired startups, which were often VC-backed. It’s common that the founders of the company have since left, and the businesses have neither failed nor flourished under their large corporate umbrellas. A new owner would require a special, venture capital-like skill set to improve the company, yet the businesses are too large to be acquired by a venture firm.

Which leads me to question number two, or the “Who.”

In the case of Skype, we saw the company’s founders emerge to lead a private equity consortia. For companies where that’s not an option, the buyer needs to be able to build a management team. Fortunately, technology-focused middle market private equity firms are the prime candidates to step in and acquire these companies. That includes firms like Accel-KKR, Vector Capital, Vista Equity, Garnett & Helfrich Capital, and General Atlantic.

But the banker cautioned, the situation is not without its pitfalls. “We’re not on the verge of a tectonic shift,” he said. There are emotional and accounting issues to take into account. Since a divestiture basically represents an admission of failure, many CEOs are reluctant to sell. And on the accounting side, such a deal would require write-downs, which would create more trouble for the seller in an already difficult market.

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