The Great Economic Crisis of 2008 affects companies capriciously, just as a tornado might flatten one home while leaving the neighbor’s untouched. The Crisis has decimated cash-starved small biotech companies for example, while their larger counterparts have sufficient revenues to weather the storm and Big Pharma—flush with cash as always—is hunting for bargains.
The same phenomenon is unfolding in tech. Oracle, Microsoft, Cisco, HP and the other technology behemoths know the Crisis threatens smaller firms in the Valley, so they’re getting ready for a shopping spree the likes of which no one has seen in that sector since the dot com bubble burst in 2001.
“We are better positioned than our peers to do well in tough times,” Oracle’s Larry Ellison is reported to have said at his company’s October annual meeting. “Acquisitions we have been looking at for some time are more attractive.”
But actions speak louder than words, so on a day the market tumbled 750 points, Oracle dropped $300 million cash to buy Primavera Software, a project-management company. HP followed suit by acquiring Lefthand Networks, a storage company for $360 million and Intel snapped up NetEffect for $8 million.
Many small tech companies are cash-strapped and don’t have a choice. “In this environment, it turns into a fire sale,” Emergence Capital’s Jason Green told Fortune magazine.
So what companies are most likely to be sold? It’s the ones with little or no revenue that are heading for a financing round just to survive, as well as later-stage companies that had planned for an IPO only to see activity in that space grind to a complete halt amid the credit squeeze.
Or, as Network Appliance CEO Dan Warmenhoven told Fortune, “Technology that would have cost me $100 million a year ago but might go for $11 million today. Deals like that.”