The big news from earlier this week was the announcement that Google would be acquiring online photo editing service Picnik for an undisclosed amount. This marks Google’s third acquisition of 2010 after buying Aardvark and reMail in February suggesting that the company could be going on an extended shopping spree much like in 2007 when it picked up 16 separate companies. Merger and acquisition (M&A) spending has floundered among tech companies in the last few years, but Google’s early purchases this year could signal a return of this kind of spending.
Though the amount of the purchase has yet to be disclosed, Picnik’s employees undoubtedly walked away happy from the bargaining table with Google – an exit many startups strive for. Picnik CEO Jonathan Sposato recently spoke with the technology business blog Xconomy where he gave his advice to startups looking for a similar M&A pickup. Sposato says that even in a period where large companies are buying fewer startups, deals are out there for the top producers.
“It’s not a complete doom and gloom scenario. I also think you can get very, very healthy, great valuations for your company as long as the fundamentals are sound,” says Sposato. “Focus on being profitable, having a viable business model, having a great product and great traffic–those are things that even in this down market can still translate to a very positive outcome.”
Sposato also remarks that deals don’t happen out the blue; instead they are bred from developed relationships between companies. In his case, Picnik is the second company Sposato has had swallowed up by the Big G. In December of 2005, Google snagged Phatbits from Sposato, a widget engine which became Google Gadgets.
“It behooves any small startup, if you’re focused on M&A transaction as your exit–and who isn’t?–to definitely manage your relationships very well with potential suitors,” says Sposato. “It’s always the result of some time and effort you’ve put in. For talks to get serious, you do have to put effort and time into managing those relationships.”
Sposato mentions that part of the reason the Picnik deal went through was because of the speedy and efficient people at Google who convinced their fellow executives that company was worth buying. Sposato says that startups need to be careful which companies they choose to deal with, because not all companies are as nimble as Google. “We got very lucky. What typically happens is you get bogged down by bureaucracy, or you need approval from some senior VP, or corporate development doesn’t talk to the product people.”
Many are asking questions about the purchase of Picnik, including those surrounding the service’s current partnership with Yahoo!’s Flickr photo sharing service. But for startups, the real question is whether or not 2010 will be the year M&A’s make a comeback. Google seems to be back to its buying ways, but we’ll have to wait and see if other companies follow suit.
Photo by Randy Stewart, blog.stewtopia.com.
