Hi-tech is hot but take care not to get burnt; The landscape is littered with tech deals that fell short

March 14, 2014 7:48 pm

Hi-tech is hot but take care not to get burnt

By Brooke Masters

The landscape is littered with tech deals that fell short

News this week overflowed with evidence that the appetite for groovy sounding technology companies is rising to heights not seen since the dotcom bubble of the late 1990s.

Not only did King, maker of the Candy Crush Saga app, announce plans to float in New York at a price that will give it a $7.6bn valuation, but Boohoo.com, the UK online retailer with annual pre-tax profits of just £3.2m, saw its shares pop more than 50 per cent when it debuted on London’s junior market, giving it a market cap of more than £800m. Investors are not the only ones on the prowl for hot hi-tech bargains. Strategic buyers of all types have been snapping up technology and data companies like they are going out of style. Under Armour, the sportswear maker, recently paid $150m for a fitness technology company called MapMyFitness and Monsanto, the US seed company, splashed out $900m on a data analytics start-up.

Global technology mergers and acquisitions jumped 65 per cent last year to a post-dotcom bubble record of $188.2 billion, according to statistics from EY. Non-technology corporate buyers are also accounting for an increasing share of the much larger deal pie – they accounted for 14 per cent of deals by value, up from 10 per cent last year.

But the odds are high that much of this impulse buying will end in tears. Wm Morrison, the struggling UK supermarket chain, provided a cautionary tale on Thursday when it took a £163m writedown and said it would sell Kiddicare, an online baby goods retailer that it had purchased with much fanfare for £70m in 2011. Morrison executives had hoped the purchase would help the company – which, until recently, had no online presence – learn about the intricacies of selling via the internet. The technology failed to live up to expectations, and Morrison inked a £200m partnership with Ocado, the online grocer, instead.

Nor is Morrison an isolated case. The landscape is littered with technology M&A deals that fell short. Remember News Corp’s misadventure with networking site MySpace, which it bought for $580m and finally offloaded for $35m six years later? And the 2000 Time Warner-AOL merger still stands out in the annals of corporate history as one of the worst deals of all time although, strictly speaking, that was a tech company buying a media property.

The danger for technology companies is that their customers, by their nature, are always searching for the next thing. MySpace was a hot property until Facebook took off, and AOL lost out when users lost their fear of the internet and stopped depending on portals.

Venture capitalists are well aware of the pitfalls of investing in cutting edge technology. They routinely back 10 start-ups in the hope that one makes it big. Ordinary investors and corporations, who need a substantially better batting average, would do well to learn from their experience.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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