Essentials for open-source mergers and acquisitions

The mergers and acquisitions market is picking up, but it's by no means a given that open-source companies will fare well, unless they deliver strategic value to would-be buyers.

Software mergers and acquisitions have been on overdrive this week, with Adobe, Google, and Intuit collectively spending roughly $2.5 billion to add to their respective product lines. Against this backdrop, OStatic's Sam Dean asks, is the time ripe for open-source mergers and acquisitions? The answer is a resounding, "maybe."

Virtually all M&A is motivated by a search for strategic value. That value comes from acquiring expertise in emerging markets, like cloud computing or virtualization, or by delivering developer communities, as VMware got by buying SpringSource.

This is why Dean is right to point to CloudEra and Acquia as ripe acquisition targets. It's not that either company has managed to build significant revenue streams yet. They haven't. But both sit on the crest of exciting markets or vibrant developer communities.

To be valuable, so-called open-source companies must deliver new markets or developers or both. Using open source to lower sales and marketing costs is an excellent strategy for building a business, but not for establishing strategic value to would-be buyers.

Speaking of SaaS (software as a service) businesses and their impact on enterprise IT, Christopher Lochhead, former chief marketing officer with Mercury Software, suggests, "The real innovation is when technology and a new business model meet." The same is true for open source.

The best bet for open-source M&A is to look for companies that have amassed a developer community or sit atop an exciting new market and have a growing customer list to suggest that a vein of gold runs through its community and/or market.

There aren't many of these, but they do exist.

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