Consider that over the past year Google spent $1 billion as a cash investment in AOL and Yahoo! also forked over $1 billion û in its investment in Alibaba. News Corp dropped $580 million for its acquisition of MySpace, IACI paid $1.9 billion to purchase Ask Jeeves, and eBay doled out $2.6 billion to buy Skype.
In a recent research report, Citigroup analysts wrote that they expect the pace of internet M&A to increase, alongside organic growth of companies. The bank foresees M&A as a way of generating international expansion as a trend over the next three-to-five years, particularly given global internet user growth rates in the region.
While Asia-Pacific is on track to grow internet use approximately 17% per year through 2010, North America and Europe are forecast to grow only 6% and 8%, respectively. And AsiaÆs internet-users growth isnÆt off a low base. Asia-Pacific is already the largest market in terms of users ù approximately 25% larger than either North America or Europe.
Consider Google. CitiÆs analysts reckon that GoogleÆs international footprint, particularly in Asia, needs to grow. Therefore, its analysts predict that over the next three years, Google will likely make major international acquisitions, particularly in Asia.
"Nearer term, we believe Google is actively engaged in assessing potential acquisitions as a way to grow its talent base, technology and product portfolio in China," says Jason Brueschke, one of the co-authors of the report who heads Citigroup's Asia media & internet research team. "Within the China internet sector itself, a number of local companies are also looking to expand the size and reach of their internet presence. Leading wireless VAS service provider Tom Online, for example, is looking to beef up its portal via selective acquisitions near-term."
It's not as if investment into the region's internet sector has been slow, either. Consider last year's $1 billion investment by Yahoo! in China's Alibaba, the 2003 $500 million acquisition by eBay of South Korea's Internet Auction, the 2003 $180 million acquisition by eBay of ChinaÆs EachNet, and the 2004 $170 investment by IACI in ChinaÆs eLong.
There are trends to these deals, which are worth noting. Typically, the Asian acquisitions have been of public companies, as opposed to small, private companies, which is more the norm in the US. Plus, the Asia acquisitions have largely focused on market position, whereas in the US more of the acquisitions have involved acquiring R&D talent and technology. For example, eBay and Monster Worldwide have each sought to acquire the leading properties in their particular market segments in China, South Korea, and India. "Going forward, we expect most of the international acquisitions in large markets in Asia will involve private companies, not only because most of the big Western internet companies already have acquired a strong beachhead in the region, but also because, as media entities, many public internet companies would face greater government scrutiny of an international takeover," says Brueschke.
Another trend has been that the investments, particularly in China, have been just that û investments, not outright acquisitions û particularly given ChinaÆs desire to oversee the communications industry. Brueschke adds: "There is a growing recognition that maintaining a very strong, entrepreneurial and local management team in place is one of the critical success factors for Western internet firms moving into Asia, and taking a minority stake in a promising young company is one of the best way to achieve this."
So given the forecast, what should we expect deal-size wise?
Brueschke says, "Probably only one or two big deals are likely left to happen in this sector, and my guess is its likely to be a 1) Chinese company acquiring another Chinese company, if in the media/portal space, and/or 2) an international acquirer and Chinese target in the e-commerce space."
Now we wait to see.
¬ Haymarket Media Limited. All rights reserved.
