Open-source M&A may not happen in 2009

Open source has cracked the code on revenue generation in a recession, putting its stock at a premium and thereby inhibiting its saleability.

Techflash suggests that big technology companies like Oracle and Microsoft may re-enter the mergers and acquisitions market in 2009, scooping up companies at low valuations. This bodes well for an industry bent on recovery, but it probably won't help open source.

In an economy that is increasingly kind to open source , open-source companies are seeing revenues rise and will resist the lower valuations that plague proprietary peers.

This isn't to suggest that valuations for open-source companies have increased. Just look at Red Hat's valuation: while Red Hat has held up better than most technology companies , it continues to trade at a discount to its real value. In a recession, everyone takes a valuation haircut.

But not everyone sells out for that valuation. If my revenue multiple suggests a $500 million valuation, am I going to accept a $200 million offer? Not if my business fundamentals are positive, revenues are rising, etc. In such a case, shareholders would be ill-served by selling out. Of course, it's possible that some will simply not bother to swim against the prevailing mood on valuations and will sell.

Even so, I can't see much open-source M&A in 2009. At least, not for the top open-source companies. I continue to believe that open source offers established vendors a way to tap new markets and new customers , but for this same reason open-source companies should command a premium, not a pittance.

Follow me on Twitter at mjasay.

Tech Culture
About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.


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