It is painful to watch
the stocks of perfectly solid companies nose-dive off the cliff. Chief
executives are helpless under the current macro-economic situation.
Perhaps it is time for private equity to engage in a shopping spree.
In many of technology's most promising and high-growth sectors,
bargains abound.
Let's start with software-as-a-service (SaaS), one of my favorite sectors within tech. Seattle, Wash.-based Concur's
(nasdaq:
CNQR -
news
-
people
)
stock has fallen from $50 in mid-September to $21.30 this week. The
company's market cap is now at slightly over $1 billion. Concur is
still an excellent company, but a victim of the turbulent times.
A similar fate has fallen upon Bozeman, Mont.-based RightNow
(nasdaq:
RNOW -
news
-
people
).
At a meager market cap of $206 million, there is no question that the
company is cheap. The only remaining question is: Will it get cheaper?
San Mateo, Calif.-based SuccessFactors
(nasdaq:
SFSF -
news
-
people
) and Dublin, Calif.-based Taleo
(nasdaq:
TLEO -
news
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people
) both have close to $400 million in market cap and are experiencing a similar unfairly beaten up dynamic.
These are good companies with excellent strategy and leadership, but
there are others that are in desperate need of cleaning up and turning
around. Let's look at Yahoo!
(nasdaq:
YHOO -
news
-
people
). After turning down Microsoft's
(nasdaq:
MSFT -
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people
)
generous offer at $33 a share, the stock has tumbled to $11.25 this
week. The leadership and strategy continue to appear haphazard, as the
Sunnyvale, Calif.-based Internet giant awaits the U.S. Department of
Justice's verdict on a proposed advertising partnership with Google
(nasdaq:
GOOG -
news
-
people
).
Despite its financial woes, Yahoo!'s usage metrics continued to
improve. According to comScore, Yahoo! was responsible for 14% of the
world's time spent online in September, and the Web portal was ranked
either first or second in 21 audience categories. Page views grew by
17% over the year, driven by double-digit growth in both the U.S. and
around the world. It frustrates me tremendously to watch Yahoo! wasting
an asset like this because of its pathetic leadership and strategy. A
private equity consortium could now have Yahoo! presumably for about
$20 billion. (See "Yahoo! Fumbling Away".)
Another company that makes me cringe is Cadence
(nasdaq:
CDNS -
news
-
people
). Back in June, the San Jose, Calif.-based semiconductor tool maker made a hostile bid for rival Mentor Graphics
(nasdaq:
MENT -
news
-
people
). At the time, Cadence stock was about $12. Mentor turned down the offer. (See "Cadence Comes Tumbling After".)
Cadence then had a series of financial gaffes, and just this month,
CEO Mike Fister and five of his top executives resigned. The stock
dropped to $2.42 last week and is now at $3.49. Cadence, if a private
equity firm were to make a bid for it, could be had for, oh, a little
over $1 billion?
In the clean-tech space, solar energy darling SunPower
(nasdaq:
SPWR -
news
-
people
)
has had a tough year, after enjoying a terrific run up for a couple of
years. The San Jose-based company faced uncertainties over the solar
tax credit bill and the dwindling availability of financing for solar energy projects due to rampant bank failures.
By every account, SunPower is an excellent company. It is a matter
of time, and perhaps some financial engineering, before the company
starts to hit its stride again. However, SunPower's current stock price
is $33.43, a precipitous fall from the once lofty $164.49 less than a
year ago. The company could be bought for about $3 billion, perhaps.
(See "SunPower Shines Bright".)
What's striking about all these companies is that each one is a
solid business, and it could be simply a matter of time before their
stocks rebound. Certainly, the SaaS companies would probably require
nothing more than just waiting out the macro-economic conditions to
make twice or three times the investment.
Yahoo! and Cadence are in a somewhat different situation. They have
suffered the double whammy of the market turbulence and their own
internal problems. In that sense, with proper leadership and strategy,
investors could make a fortune by executing successful turnarounds.
There are still heaps of cash in the hands of private equity funds.
At the current prices, stepping in for a shopping expedition may not be
such a bad idea. And it would certainly offer the entrepreneurs trying
to run their companies in these troubled times some respite from the
stock market's distracting volatility.
But what would it mean for the individual and institutional
investors holding those stocks? It would mean that they are forced to
sell out at close to the bottom of the market, without getting a chance
to recover.
At the end of the day, these negotiations would be a matter of
nerves and speculation. Investors would agree to sell if they fear that
the market might get worse. On the other hand, private equity funds
would need to believe that the market has reached bottom in order to
start making offers.
The trillion dollar question remains: How much worse will it get before things gets better?
Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy.
She has a master's degree in electrical engineering and computer
science from the Massachusetts Institute of Technology. Her first book, Entrepreneur Journeys (Volume One) is available from Amazon.com.
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