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After Facebook: Fewer IPOs, More M&A?

Microsoft's rumored $1 billion+ Yammer buy may signal a new trend


Since Facebook‘s (NASDAQ:FB) disastrous IPO, there’s been a lot of M&A buzz on companies that provide social-media tools. In fact, a pioneer in the space — Yammer — is rumored to be in discussions with Microsoft (NASDAQ:MSFT) for a $1 billion+ deal.

For the most part, the market for social-media tools is fairly young, only going back to about 2007 or so. But since then, venture capitalists have plowed billions into early-stage operators. So yes, the market is already showing signs of maturity.

At the same time, the revenue opportunity may not be as large as predicted. After all, Facebook has been struggling to maintain its growth.

Oh, and social media may not necessarily be an ideal marketing medium.

Let’s face it — how many people really look at the ads on social-media pages? It’s a good question, and advertisers are starting to reevaluate their spending plans. GM (NYSE:GM), the No. 3 advertiser in the U.S., has already eliminated all expenditures on Facebook.

When a market hits maturity, mega tech companies get interested in acquisitions. These operators always like to see how things play out — and have the luxury to do so because of their enormous resources. (NYSE:CRM) recently shelled out $745 million for Buddy Media.  Oracle (NASDAQ:ORCL), on the other hand, has struck deals for Vitrue and Collective Intellect.

Yammer is a different type of social-media company. It operates a platform that allows employees, customers and partners to communicate with each other. Yet this approach is limited if it isn’t integrated into a marketing system.

Thus, Yammer is at a big disadvantage and should look for a strategic deal with a company such as Microsoft. It helps that both parties have been working together to integrate their products over the past five years.

Moreover, other companies in the space will probably need to do the same, such as Box and Jive (NASDAQ:JIVE).

There are a variety of mega tech companies that can pull off deals, such as IBM (NYSE:IBM), SAP (NYSE:SAP) and EMC (NYSE:EMC). In other words, we could see a spate of major dealmaking over the rest of the year as the social-media industry continues to go mainstream.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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