The advice comes at a time when young, private companies are facing the, or launching an initial public offering. As a result, companies are increasingly turning to acquisitions as a way to survive in some shape or form and to return money to their investors.
The panelists, who included executives from Sun Microsystems, Oracle, Veritas Software and Tibco, noted that they are in acquisition mode but aren't buying just anything even though prices are cheap. The panel was part of "State of the Art" seminar series held in Menlo Park, Calif., by venture capital firm Garage Technology Ventures.
"I see about eight to nine companies a week. And often the problem is they don't have a good idea of where they fit in with our platform," said Ram Menon, Tibco chief strategist. "These companies need to be able to tell us how they fit in and how they will incrementally increase our revenues."
Tibco, a business integration software company, conducts two to three acquisitions a year and is currently interested in companies offering such technologies as real-time analytical applications and Web services.
Oracle, meanwhile, acquires about four or five companies annually, in relatively small deals. The database and applications company is generally looking for buyout targets that fall within its "expanding footprint," such as application and collaboration servers, as well as database technology, said Douglas Kehring, strategic advisor to the CEO's office.
"We're always interested in (companies that make things) faster, cheaper, better," Kehring said.
Sun Microsystems also handles about four acquisitions annually, and most are small deals of under $200 million. Web services and components of Web services are some of the industries where Sun is looking for potential buyouts, said Brian Sutphin, vice president of Sun's corporate strategy and development.
"(Prospective sellers) need to have a good sense of where we're going, our strategy, our products and our vision," Sutphin said. "It also helps if a company knows anyone in our product group, or...if a top-tier venture capitalist, who sits on the company's board, calls me and says he has a (successful) company and wants to take 30 minutes of my time."
Veritas, meanwhile, tends to make tactical acquisitions--which are intended to fill a hole in a company's product line--that are worth $100 million or less, and usually they involve companies with great technologists. Strategic acquisitions--which take companies in a new direction--come less frequently and tend to carry price tags of $100 million or more. And the third category, which happens even less frequently, involves deals that involve purchasing revolutionary technologies, said Paul DiNardo, vice president of corporate development.
Meanwhile, companies need to do more than think of ways to market themselves to prospective buyers, the panelists said. They also need to consider when to begin making the pitch.
"By the time companies have these 'come to Jesus moments,' the value has been destroyed. In about half a dozen cases, I've seen a company approach us too late. One company came to us and said they wouldn't settle for a valuation of under $150 million. Then, nine months later, they called to see if we wanted to buy their patent portfolio for around $250,000," DiNardo said.
The panelists also noted that receiving an investment or entering into a partnership gives no greater weight to guaranteeing a buyout deal down the road.
Said Sutphin: "It's not a farm-team strategy."