Seven down, five to go for VeriSign

-Contact Thomas Rasmussen

After accounting for a dime of every dollar spent on M&A in 2008, divestitures appear likely to be a thriving business again in 2009. They accounted for 11% of the total M&A spending last year, up from 7% in 2007. And respondents to our annual Corpdev Outlook Survey said they were twice as likely to expect the pace of divestitures to increase than decrease this year. This is especially true for larger companies, some of which have overindulged on M&A throughout the years.

In the world of tech divestitures, there is no better example of this than VeriSign. The naming and encryption giant has been working toward selling off billions of dollars worth of properties that ousted CEO Stratton Sclavos picked up during his multiyear shopping spree. The company announced its first divestiture of 2009 last week, the sale of its European messaging division 3united mobile Solutions. That move follows the sale of its remaining stake in Jamba in October 2008 and the divestiture of its inCode communications and post-pay billing divisions in November and December, respectively.

For those of you keeping score, VeriSign has now completed seven deals, with five still to go. But as is becoming grudgingly apparent to the company and many others in the same position, this is easier said than done. The current economic environment is not exactly ideal for divestitures or spinoffs. And shedding the remaining parts, especially its bloated communications and messaging divisions, has proven to be quite a challenge for the company since they most likely command a much higher price tag, likely in the hundreds of millions of dollars. VeriSign says there are strategic buyers, but the closed credit market and general economic anxiety are severely hampering potential deals.

A chronicle of VeriSign’s seven divestitures

Date Acquirer Unit Note
February 2009 Sinon Invest Holding 3united Mobile Solutions Acquired for $66m in 2006
December 2008 Convergys Post-pay billing business
November 2008 Management buyout inCode Wireless Acquired for $52m in 2006
May 2008 MK Capital Kontiki Acquired for $58m in 2006
April 2008 Melbourne IT Digital Brand Management Services business Sold for $50m
April 2008 Globys Self-care and analytics business
June 2007 business

Source: The 451 M&A KnowledgeBase

Small-time means good time for M&A

-Contact Thomas Rasmussen

Smaller shoppers are increasingly perusing the proverbial deal aisle. As our 2008 Corpdev Outlook Survey conducted in December indicates, 2009 looks to be the year of small-time shoppers. When we delved further into the data to try to get a feel for what corporate development officials from various companies are thinking, we observed an interesting trend: While large firms said they were more likely to do divestures than acquisitions, small companies were significantly more bullish on M&A. (For our purposes, we classified small firms as those with fewer than 250 employees and large firms as those with 2,500 or more employees). In fact, it seems that large acquirers are a bit more wary of the economic realities than their smaller rivals, with some even leaving the market entirely. Corporate development officials at large companies were twice as likely to say the current economic recession is ‘very likely’ to depress deal flow compared to their brethren at small companies.

Anecdotal evidence of this trend reinforces that sentiment. Take Pegasus Imaging Corp, a privately held, employee-owned company founded in 1991 that is recognized for its host of enterprise and consumer-imaging products but mostly for its JPEG-imaging compression technology. After having been out of the market since acquiring its competitor TMSSequoia four years ago, it picked up Tasman Software and AccuSoft’s imaging business last week for an estimated combined cash value of about $30m. The small, privately held shop told us that the current environment is ripe for M&A, and we expect the two acquisitions to be the first of many this year. Meanwhile, serial shopper Avnet may be slowing down, despite having just announced its first deal of the year (last week, the mid-cap company spent an estimated $30m for Nippon Denso Industry, an electronics distributor based in Tokyo). Avnet announced six deals worth $385m in 2008, but recently indicated to us that it will take a much more cautious approach to shopping this year.

Industry makeup of respondents

Industry Percentage
Infrastructure software 32.0%
Applications software 21.3%
Systems/hardware/semi 13.3%
Other 9.3%
Mobile 8.0%
Networking 6.7%
Services 5.3%
Telecommunications 4.0%

Source: The 451 Group Tech Corpdev Outlook Survey, December 2008