TechWag

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Louis Gray makes an interesting series of predictions for 2009, all of which are notable, but the one that is the most interesting is the prediction that eTrade, Digg, StumbleUpon, Skype and Yahoo! Will All Be Sold in 2009. In the M&A realm there is only one way to free up the cash or equity to make this happen, and it all depends on money, either government bailout money, or the cash positions that a company holds already that have not been devastated by the market. M&A relies on money, the deep pockets that companies either have, or have access to. With the credit markets frozen, this prediction becomes harder to realize, especially if the valuations are lofty, or out of line with the actual ability to raise money.

It is not going to be that easy to raise enough money to do a major M&A this year, unless a company has it already, or is in a strong enough equity/cash position to pull the M&A off in this market.

The problem is really more one of necessity, who needs etrade, Digg, or others in Louis’s list? The only way to get any kind of M&A approval is going to be one where the value of the company offsets quickly the costs of the merger or acquisition. Looking at e-trade (currently trading in the 1 dollar to 1.25 range), with a market cap of little over 500 million, etrade has hemorrhaged money for the last 2 years (Google Stock Reports). It will be a tough sell in this credit frozen hyperactive risk reduction environment. If etrade should show a major profit, then it might be worth buying, but for right now it might look far too risky for an investor, either as a stock or as a buyout.

Yahoo, Digg and others that are mentioned all suffer from the pre-apocalypse valuation problem. The valuations are too lofty given where they are in the system, making these also equally risky. Digg presents a special problem as there has been talk of buy out for a very long time with no one actually doing it. Yahoo also presents its own special case, in that the botched M&A with Microsoft from 2008 will go down in the annals of history as one of the worst deals ever broken up. The Yahoo Microsoft deal has already become a case study in everything that can go wrong with a merger or buyout offer. Given the past track records of those two companies, any M&A activity there will have to be judged against the risk that the deals will not go through, or that something will crop up later that will blow the deal.

Finally, Stumbleupon and Skype, both are owned by Ebay, which has its own particular set of problems in its core business, namely auctions. Traffic is down significantly at the eBay web site, and eBay has failed to monetize stumble upon, or adequately been able to sell mass Skype adoption. The troubles at the parent company unless it needs a quick infusion of cash would indicate that the buyout of either Skype or Stumbleupon would be difficult to consummate. The only way that these properties will be sold is if Ebay needs a quick infusion of cash, and they will go at fire sale prices because eBay will wait too long to get a decent price, or will dither about making the deal.

I would rather expect that there will be few if any technology M&A activity (unless the deal is outstanding) through the end of Q3 of 2009. Rather it will be when people believe that the prices have hit bottom that real M&A activity will start again, and be of value to the purchasing company. Any M&A activity in Q1 through Q3 will be more of a matter of convenience or desperation to unload unprofitable companies to someone who has access to credit, equity, or cash on hand to make a fire sale deal.

The problems with valuation of the companies, access to credit, cash or equity, trust in the financials that companies are reporting or desperation are will drive M&A activity for the most of 2009. While not the best, it could be worst, and it also all depends on what President Obama does with his first 90 days in office.

Tags: Louis gray, predictions, m&a, activity, business, core, fundamentals, money, cash, equity, trust