I Hate You ... Call Me

February 11, 2008

Maybe beggars can be choosy after all?

Yahoo! has given the official "Thanks, but no thanks" to Microsoft in response to the software giant’s $45 billion offer of a few days back. Nothing too remarkable about that, of course; first offers rarely look the same as accepted offers. (One high-profile exception from last year that jumps out is News Corp.’s initial bid for Dow Jones, which didn’t budge, financially, through the entire process.)

But if reports are true that the board of Yahoo! wants another $12 billion or so to consider the deal, maybe you have to wonder exactly how bad the M&A market really is. There aren’t necessarily folks knocking down the door to own what some see as a company whose best days are behind it — maybe waaaaay behind it — yet here Yahoo! is, demanding another 25% on top of a bid that offered a better-than-60% premium to begin with. Bold, indeed. Or an indication of just how desperate Yahoo! thinks Microsoft is. Perhaps we’ll see if Microsoft lives up to its "Mr. Softy" moniker.

For some reason, the whole thing reminds me of when the gals back in high school would get into their weekly rifts with each other, which usually ended with, “I hate you ... Call me."

Meanwhile, among the smaller players there’s no shortage of agreed-upon deals. On Monday alone, there were no less than four deals announced in the middle-market space, two of which were worth a combined $720 million. (Terms of the other two deals weren’t disclosed.) The relatively smooth sailing continues in that part of the market.

And if recent research from Baird is right, that trend should continue. Steven Bernard, the director of M&A research there, says the majority of the factors he looks at to drive deal making have become uncertain or have turned negative. But there are a handful of catalysts besides the usual suspects (the oft-cited return of strategics and the hordes of private equity cash) that Bernard sees playing a role. For instance, if you operate in the materials, technology, energy, telecom and business process outsource arena, get ready to answer your phone.

The biggest obstacle of all could simply be economic activity. Recent data paint an ugly picture, and that consumer spending slowdown that's been projected annually for the past 15 years might actually play out this time around. Here again, though, a slowdown from a buyer's perspective means lower valuations.

The bottom line is that the economy is now in the M&A driver’s seat. The jury is out as to whether or not we need airbags.