It’s an M&A Frenzy Out There

Just when you thought we were entering the dog days of summer (aka August), there’s been a flurry of acquisitions recently.

Blockbuster is the latest to enter the fray with a deal to acquire Movielink, a move that will give Blockbuster the ability to sell digital downloads. Meanwhile, Scripps Networks is purchasing Pickle.com for $4.7-million. Pickle is an audio and video sharing service, and also features a user-generated content management platform. These deals on the heels of Forbes buying Clipmarks and Hearst purchasing Kaboodle.

Since most of the companies being acquired are privately-owned (and venture capital-backed), it’s difficult to get a sense of valuations but it anecdotally appears that 10x revenue is becoming fairly standard. One of the key questions is whether this buying frenzy is the sign of a bubble or just a recognition by many large companies (Blockbuster, Forbes, Hearst) that the Web landscape is moving quickly so they need to buy rather than build if they want to position themselves strategically to remain viable/competitive.

This growing amount of M&A activity is obviously positive news for entrepreneurs looking to hit the jackpot. Although there are signs the high-tech IPO market may be showing signs of life again, it is far easier and less expensive for start-ups and fast-growing companies to accept a takeout offer. For venture capitalists, the opportunity for a quick return on their investment IF they make investments in the right markets/companies at the right time will only whet their appetite to deploy capital.

My sense is the rest of 2007 will continue to see a lot of deal-making as acquirers try to establish footholds in markets such as social network, user-generated content and content-sharing/distribution. Mind you, I don’t think many of these deals will be blockbusters. Instead, most will be smaller, strategic deals – say less than $10-million to $20-million, which will let acquirers justify buy versus build decisions.