Slim Pickings for Acquisitions These Days

Not sure if it's just me, but inspiration for blogging has been light lately, and not much seems to happening. A couple of acquisitions from the past few days seems to support this, for what it's worth.

First, a couple of Canadian companies made a move. On Monday, Ottawa-based Natural Convergence announced its acquisition of Toronto-based NewStep Networks. Both are pretty small players, but I can see the fit. NewStep's FMC capabilities help extend NC's silhouette platform to mobile devices, which should be a good value-add for cost-conscious SMBs.

On the same day, SabSe Technologies announced their acquisition of Jaxtr. I've never heard of SabSe, and while Jaxtr is popular with the mobile crowd, it's never been something I've had much need for.

Blockbuster deals are hard to come by these days, and this is about as exciting as things get right now. Small deals, small companies, relatively unknown companies - not much to talk about, right?

While these are just two data points, a couple of things come to mind that bear watching for future deals in this space.

First, small companies really struggle in tough markets (particularly in Canada). They usually make a move when they run out of cash or fail to get enough traction - and sometimes these happen in tandem. NewStep had a lot of Bell DNA, but always struggled to be understood, and demand for FMC has been slow to materialize. Natural Convergence, on the other hand, has the resources of Wesley Clover behind them, and likely figured the time was right to make a strategic move like this and bulk up to become a stronger player in what's becoming a crowded, but fragmented market.

I never followed Jaxtr that much, but I do know they are one of many players chasing the market for lower cost calls and messaging on mobile phones. It's a huge opportunity, but needs big time volume to turn a profit. The news talks about their user base of 10 million, which no doubt is the carrot for SabSe. Looks like Jaxtr will complement their own offerings, and they'll try to leverage that community for value-added services.

So, what's interesting about these deals is that no valuations were disclosed. That's not so unusual, but you just know the buyouts couldn't have been that much. The last deals of note in this space - Acme buying Covergence and BroadSoft acquiring Sylantro - were smaller than one might have expected, and it just shows how hard it is to get a good buck these days out of a deal.

Aside from the fact that small companies are often happy to sell in a down market - or even have to sell to remain viable, there's something else that strikes me about these deals, especially Jaxtr. In essence, Jaxtr is an application, and one that beyond saving some money for subscribers, doesn't have that much inherent value. I've always been skeptical about building a company around an application, unless the end game is to sell it to a large platform provider.

What worries me is this - if this is Jaxtr's fate, how many other applications plays will follow as the screws tighten in this market? I know it's just software at the end of the day, and it just reinforces a basic reality of the IP communications space - barriers to entry are low, and so too for exits. Unless you can have Skype-like communities, it's really hard to make these type of businesses valuable long-term. I don't really know what the answer is, but I do know there are lots of startups out there like Jaxtr, and I'm sure we'll hear more stories like this in the second half of the year.