Tech's next step: More M&A?

An analyst at Canaccord Adams named Peter Misek caused a minor stir on Thursday when he suggested to Reuters that Research in Motion's weak stock price may induce a buyout bid by Microsoft.

His argument is that Microsoft needs to stay competitive vis a vis Google and Apple in the smartphone arena. Conclusion: "RIM is a massive strategic fit" for Microsoft."

Darwin: Will the rules apply again?

(Credit: Wikimedia.org)

I'm not so sure that Microsoft would help itself by going the RIM route, but Misek's instincts are sound in one respect: the global turmoil might--and the operative word is might--spark a vigorous round of mergers and acquisitions in the technology business once normalcy returns.

What with one stock sell-off followed by another, the tech sector's biggest names have all taken their lumps. Ditto for the start-up crowd. By now, you may have read or heard about the "R.I.P. Good Times" presentation Sequoia Capital gave earlier this week on behalf of its client companies. Om Malik, who was first to report the news, offered this grim assessment:

Folks this is bad news for Silicon Valley, which has been living in a bubble, assuming that it is going to weather the global economic storm without being impacted. We have been following this story since last year, pointing out that the tech (industry) is not an island.

It's hard to disagree with Om's conclusion. Writing in Forbes today, columnist Sramana Mitra urged Silicon Valley's leaders to lead the country out of its "current miasma of fear."

Steve Jobs and Eric Schmidt to the rescue? Well, those guys are good, though not that good. But considering that we are about to start the weekend, let me try and find at least one silver lining.

The last time a stock panic ravaged Silicon Valley, what happened? There was no shortage of post-bubble doom and gloom but the technology industry mended on its own. Hewlett-Packard bought Compaq, Oracle acquire PeopleSoft, BEA, and J.D. Edwards, IBM acquired Cognos, Ascential, Rational, MRO Software, and a host of other mid-sized enterprise software companies and, of course, Google bought YouTube.

Once the smoke clears, the tech industry will undergo a similar round of Darwinian consolidation--and that's hardly a bad outcome. Do you really think Compaq would have prospered had HP not swooped in? Ditto for all those enterprise software companies had not IBM and Oracle gone on buying sprees?

I pinged a venture capitalist who I've known for years for his take. Here's part of what he wrote: (sorry, no names)

When your mail popped in, I was on the phone with several M&A companies talking about that exact strategy. One thing actively floating around is this pushes consolidation of small/mid-tier players. Then those resulting companies are the actual targets.

My Microsoft buddies tell me that the pile of crippled technology companies (crippled from a funding perspective) is so large and the prices so cheap, they have a decent pick at figuring out plays in markets, etc, whereas six months ago these options didn't exist. Bulking up the search assets, for example, is a big priority and this situation helps. But there are serious cutbacks happening at all of the big guys, so it remains to be seen if anybody will actually act on this.

In other words, chalk it up to the fear factor. Taking a deep breath as I write this, you've got to believe that that narrative will change--predicting exactly when, of course, is the hard part.

•  Postscript:

With the market's slump, Larry Ellison told shareholders at Oracle's annual meeting that the company may take advantage of the recent stock volatility as an opportunity to acquire other software makers.

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