Lowenstein's View: Fearless M&A predictions

Mark LowensteinI believe there is going to be a marked increase in M&A involving companies in the wireless industry over the next couple of years. Why? First, we are in an accelerated innovation cycle in wireless--look at how quickly device capabilities are evolving, or the fact that we went from 3G to 4G in half the time as the previous "Gs." Second, acquisitions have been a key way for the big Internet players, from Apple and Google to Cisco and Amazon, to fill gaps as part of their intensifying focus on wireless. Third, big tech and media players have a lot of cash on their balance sheets that they are looking to put to work, and mobile is a focus. Finally, the dollar amount of venture capital investing in the sector has declined over the past two years, due in part to the recession but also because some of what has been driving wireless growth, such as apps, does not lend itself to the traditional "VC" model. Combined with a tepid IPO market, VCs have been paying greater attention to (and weeding out) their portfolio companies, and have become more aggressive about shopping them around.

That said, here's my brainstorm list of M&A possibilities: target company, thoughts on who might be the acquirers, and rationale. One pattern you'll notice in my thinking: big Internet companies are accelerating their play in mobile.  Please note, these are just my thoughts, I'm not privvy to any inside information or dealmaking.

Target Company

Research in Motion (RIM)

Potential Acquirers

HP, Cisco, Dell, Microsoft

Rationale

I believe the OS sector needs to be consolidated. Example: Microsoft's new phones are pretty good, but is there room for another OS to take major share? RIM might be another "Linksys" for Cisco, or a way for Dell, which needs a new trick, to catch up in mobile, or for HP to add an enterprise angle to the consumer-esque flavor of Palm.

 

Target Company

Jumptap, Millennial Media

Potential Acquirers

Microsoft, Yahoo, IAC, AT&T, Verizon

Rationale

Nearly every standalone mobile advertising player has been acquired, and these folks are among the few indies still standing. It's amazing to me how the operators have completely sat on the sidelines as mobile advertising has taken off, which is why they could be candidates to make an acquisition. And if Yahoo is going to be to be a player in wireless, it needs an ad play.

 

Target Company

WHERE

Potential Acquirers

Yahoo, AOL, IAC, RIM

Rationale

This company has quietly assembled 4 million users of its app and has been building a hyper-local ad network. Rationale for acquisition and potential acquirers is similar to above, but I've added RIM to the equation because this would be a nice element of their services play.

 

Target Company

Scanbuy, Boku, Zone

Potential Acquirers

Qualcomm, Visa, eBay, Amazon, Digital River, Intuit

Rationale

If mobile commerce is going to happen in North America, it's going to involve big players in the financial services and e-commerce sectors. Visa is making a big bet in mobile and is acquisitive as a company. eBay might do something to complement PayPal's activities in mobile. And keep an eye on Amazon. 

 

Target Company

GetJar (Handmark, Motricity?)

Potential Acquirers

Amazon, IAC, Disney, Facebook, Nokia, AT&T

Rationale

GetJar is the world's second largest app store and is the leader on feature phones. I could see Amazon buying them as they are a candidate to compete with iTunes and Android market. Nokia could integrate GetJar with Ovi as part of its global services play. An acquisition by an operator is also a possibility. Handmark and Motricity are combo apps/apps infrastructure companies that could become part of a bigger play...or perhaps GetJar acquires one of them!

 

Target Company

Antenna Software

Potential Acquirers

SAP, Oracle, IBM, Salesforce.com

Rationale

There has been a lot of consolidation in the enterprise space in the past couple of years, involving Oracle, SAP, Sybase, McAfee, and so on. Mobile is the next logical step. Antenna Software is among the largest independent providers of mobile solutions to enterprises in a sector with few breakout leaders.

 

Target Company

Picochip

Potential Acquirers

Cisco, Motorola, Ericsson, Intel

Rationale

I think it's going to be difficult for standalone suppliers to be successful in the femto market. Either femto becomes part of a broader portfolio of a hierarchical network infrastructure (hence the thought on Ericsson), or it becomes part of a broader "home gateway" solution that combines router and set-top box. Also, Picochip is the leading semiconductor provider in WiMAX, so could be part of a consolidation play as the world goes LTE.

 

Target Company

Swype, Vlingo

Potential Acquirers

Nuance, Apple, Google, Samsung/HTC/Motorola/Nokia

Rationale

Swype specializes in text input for screens and has secured agreements with most major OEMs, across several platforms. Vlingo has done some pioneering work in the voice UI arena. It is ultimately difficult for companies like Swype and Vlingo to survive on a standalone basis: witness T9, VoiceSignal, SnapIn, etc. Nuance, given its acquisitive track record, is a top candidate to make an acquisition. An OEM, looking for UI differentiation, could do something too, though it could be messy given existing contractual commitments. Apple and Google might covet the IP of these companies as part of their broader mobile play.

 

Target Company

Flurry, Neuralitic, Carrier IQ

Potential Acquirers

Google, Nielsen, Amdocs

Rationale

There's a lot of activity in mobile analytics and measurement. Motally was acquired by Nokia earlier this year. Each of the companies above plays in a different part of the mobile analytics ecosystem, but I believe this space is going to be a beehive of activity over the next few years.

 

Target Company

724 Solutions, Azuki Systems, QIK, Packet Video

Potential Acquirers

Akamai, Adobe, Cisco, Acme Packet

Rationale

Video is going to be a big part of mobile data, given that it represents some 40 percent of Internet traffic. Companies that help optimize video for mobile would be an important asset to companies like Akamai, Adobe, and Cisco, who are making big bets on wireless.

 

Target Company

NextG

Potential Acquirers

Ericsson, Alcatel-Lucent, American Tower

Rationale

NextG is a leader in deploying distributed antenna systems. The business model is more like that of a tower company. They could be attractive to an infrastructure OEM or a tower company looking to add DAS to their portfolio. One of NextG's competitors, NewPath Networks, was recently acquired by Crown Castle.  

 

Target Company

T-Mobile, Clearwire, Leap Wireless

Potential Acquirers

Metro PCS, Sprint, Comcast

Rationale

I'll conclude with a biggie. Look at how many operators are struggling even though the wireless market is growing. Expect to see consolidation among U.S. operators in 2011, with the orientation toward a strengthened #3 to compete against the AT&T-Verizon juggernaut. Additionally, the pre/advance pay market has become overly crowded, given the number of facilities-based providers, MVNOs, sub-brands, and entry by major retailers such as Wal-Mart into the game.

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