Zynga S-1 reveals a savvy M&A strategy

Zynga has shown a notable uptick in acquisitions in recent months, in what turned out to be part of the buildup to the company’s planned IPO. But although much has been made of the volume and frequency of Zynga’s M&A activity, it turns out that the company did not amass the nearly $1 billion it has in cash and equivalents by opening up its wallet too widely when making buys. The S-1 Zynga filed Friday revealed exactly how savvy it has been in making all those deals.

Zynga completed seven acquisitions in 2010, according to the IPO filing. Together, the purchase prices of all those deals totaled $101.6 million; $35.2 million of that was in stock, and $66.4 million was in cash.

By far, the biggest deal Zynga made last year was its November 2010 acquisition of online mobile gaming company Newtoy, which had a purchase price of $53.3 million, most of which was cash — $44.3 million of it, to be exact. In fact, the Newtoy deal accounted for fully two-thirds of all the cash Zynga used for M&A in 2010.

It bears mention that using stock to make acquisitions is nothing unusual. In fact, many of the startups that have been acquired by Zynga may have preferred to be paid in stock. Having a piece of a very hot, pre-exit company like Zynga could well turn out to be more lucrative than the corresponding cash value at the time last year’s deals were made.

And while the volume of Zynga’s M&A activity seemed to pick up in 2011 with at least three buys in the first three months of the year, the S-1 shows that the company’s actual spending on those deals was negligible. According to the filing, Zynga spent a total of just $10.4 million on acquisitions in the first quarter of 2011.

None of this is to say Zynga is stingy in its acquisition strategy. Zynga offers acquired employees equity awards and cash bonuses that appreciate over time, as an incentive to get them to stick around post-deal. During 2010, the company issued $175.5 million worth of post-acquisition compensation awards.

Once Zynga goes public, it will probably become a bit more spendy. Public companies are expected to have full-fledged M&A strategies, and shareholders often expect a healthy amount of the firm’s annual budget to be put toward making buys. But so far, Zynga has shown a notable restraint in its M&A strategy, especially considering its size and growth. It goes to show that even in the ultra modern world of today’s tech industry, some old-fashioned ideas about saving money are still sticking around — in some circles, at least.

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