Sunday, January 06, 2008

Forbes Digital Media Industry M&A Forecast in '08

Web Company Sale!

By Wendy Tanaka - - 1/4/08 - What is Plaxo thinking?

The struggling electronic address book company has reportedly put itself up for sale and is seeking as much as $100 million--a hefty sum that conjures bad memories of inflated dot-com valuations.

Industry experts say $100 million is likely too steep a price for Plaxo, but the company couldn't have picked a better time to shop itself around as tech giants and big media are on the prowl for next-generation technologies that will help them stay competitive and survive. Plaxo declined to comment.

Former News Corp. (nyse: NWS) executive Ross Levinsohn predicts that there will be more Web 2.0 acquisitions this year than in 2007, but the deal sizes will be relatively small compared to those of the go-go '90s. "I see a lot of interest in sub-$50 million deals versus $200 and $300 million" deals, he says. "In the Internet space, you'll probably see more deals as traditional media gets more and more enthralled with digital media. They're all trying to figure it out."

Among the Web 2.0 deals last year were MySpace's acquisition of Web application developer Flektor for $20 million, and CBS (nyse: CBS ) snapping up video blog Wallstrip for $5 million. Levinsohn, now a partner at Velocity Interactive Group, expects some big deals, too. He speculated that could be up for sale and IAC/InterActive, which split into five companies last year, could sell off a unit or two in 2008.

Besides Plaxo, many other Web 2.0 companies--including social networks Digg and Bebo, and application developer iLike--are also said to be looking around for suitors. Bebo didn't deny rumors that it wants to be acquired, but says it hired a bank to "potentially" raise another round of funding. Still, getting acquired is "in the back of the minds of every company," says Toby Murdock, co-founder of music application developer Qloud.

The truth is, all companies--especially those that have sucked in millions of dollars from venture capital firms--need to sell or go public to make money for their investors. In fact, many Web 2.0 start-ups were created for the express purpose of being acquired in a short period of time. "There's a generation of entrepreneurs that are focused on building and selling, and they love doing it," Levinsohn says.

Look for the usual tech and media acquisition machines--Google (nasdaq: GOOG), Yahoo! (nasdaq: YHOO), Microsoft (nasdaq: MSFT ), News Corp., IAC and Disney--to keeping rolling up companies this year. Less obvious big names could join the fray as well. One venture capitalist suggests that Nokia (nyse: NOK) or (nasdaq: AMZN ), for instance, could be interested in Plaxo. "If you're Nokia, you want to integrate with Outlook and the Web," he says. "Amazon could use it as a gift reminder service."

Whether or not Plaxo gets acquired, one thing is certain: The Web 2.0 space will continue to be the center of attention in the fast-changing media landscape.

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