A Peek Inside the M&A Playbooks of Technology’s Top Acquirers

Last night a group of M&A gurus from the corporate development teams at top tech acquirers Google (s GOOG), Microsoft (s MSFT), Yahoo (s YHOO), Cisco (s CSCO), Facebook and Twitter gathered to share insights into their business with a group of startups at a fancy-pants Los Altos Hills, Calif. mansion. Though Facebook and Google might have been the most notable active acquirers lately, everyone on the panel said they are out shopping. They each have a bit of a different style, and a bit of a different target startup. Below are the most notable bits from each participant:

The ridonkulous Kelly Porter Mansion, where the event was held

Google‘s Amin Zoufonoun said that he looks at three types of acquisitions: a proven product and team, an uncertain big bet, or market and tech leadership (like YouTube and DoubleClick). He said recent acquisitions by Google and other companies like Apple point to the fact that mobile is not a core part of the DNA of many tech giants. As for advice, he warned startups that they always underestimate how long it takes to close an acquisition; for Google, deals usually take three to four months. As for areas he’s interested in, Zoufonoun said he thinks music is overhyped (an interesting comment given Google is reportedly looking to make a play in this space), and mobile user interfaces are underhyped.

Cisco‘s Derek Idemoto talked up the value of post-acquisition integration. His company has been incredibly acquisitive, with 140 deals in the last 20-odd years. Idemoto bragged that 75 percent of acquired employees are still at Cisco after four years. He said he thinks video is underhyped, and that he’s particularly interested in data. “The most, and most relevant data might win,” he explained.

Yahoo‘s Taylor Barada, who joined the company a year ago, declared of the original Internet giant, “We’re back in the game.” He said he thinks content discovery is underhyped, and personal measurement tools are an interesting, under-the-radar opportunity. He invited startups to come talk to him as his job’s nature is to “float across” Yahoo’s complex business. “We like meetings with no real agenda,” he said. “We’re a bit of a service arm to connect teams at Yahoo.”

Facebook‘s Mike Brown (as might be expected!) talked up his company’s inclination towards talent acquisitions of small companies that haven’t raised much funding. Often entrepreneurs “filled with chili powder and vinegar” are the best hires as compared to trying to get them to apply for a job “through the front door,” said Brown. Most interesting, Brown talked about Facebook’s particular preference to pay cash (and stock options) instead of stock for companies it acquires. Facebook needs to keep its number of common shareholders under 500 or risk having to file financial statements to the SEC. Brown told startups that their transactions could be “more difficult” if they have a large number of investors. “We can’t issue stock in those cases because we can’t take on that number of new shareholders,” he said. (That’s an interesting contrast to the current trend of young startups taking early rounds from large syndicates of angel and sometimes VC investors.)

Microsoft‘s Fritz Lanman said even though his team hasn’t done a ton of deals recently, “It’s not like I’ve been on holiday for the past year.” But he admitted that in a company worth $250 billion, the big value is in the core franchises — usually not startup acquisitions. “There’s a natural ebb and flow between strategy and execution,” he said. He encouraged startups to form relationships early and not to oversell themselves. “We’re a little bit smarter than we look. It shouldn’t take us that many meetings to figure out what you’re doing.”

Twitter‘s Jessica Verrilli said her company is still at an early stage, so she looks at deals that may be very core to its business. “Sometimes the best talent happens to be working on something related to Twitter,” she said — and hiring is right now one of the company’s top priorities. Twitter usually offers a combination of stock and cash in its deals. One area she’s actively looking at is relevance and discovery, Verilli said.

Moderator Mike Marquez of Code Advisors also asked the participants for a moment of role-playing to say what startups the people sitting next to them should buy. One of most interesting responses was Lanman telling Brown that Facebook should buy Foursquare and Zynga. “It’s insane that Facebook lets Foursquare exists,” he said. “Facebook should be so much further in mobile. Local direct marketing is the next $100 to $200 billion opportunity.” Meanwhile, Idemoto told Zoufonoun that Google should look into buying content companies as well as Nielsen for its data.

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