Over at GigaOm, the eponymous Om Malik seems to think the economy has turned the corner and that a new wave of technology-industry mergers and acquisitions will wash ashore.
I’m less convinced than most that we’re entering a new era of prosperity. Any recovery will be modest, at least in the developed world, because it’s now apparent that the American consumer no longer can afford to function as the omnivore that avidly devours the manufactured exports from China.
The decline of the American consumer will have major economic implications, and not just in the USA. Remember, consumer spending accounts for nearly 70 percent of economic activity in America, and many export-driven economies depend directly or indirectly on that activity.
Technology companies compete globally, though, and China’s economy is growing, as are the economies of other developing nations such as India. China is busily attempting to engineer the creation of a consumer class, one that will compensate for the slackening demand that has resulted from the financial enervation of the American consumer. That will take a lot of time and effort, however — years, not months.
During this lengthy interregnum, the period between the rise of a Chinese consumer economy and the exhaustion of the US consumer, recoveries will be tenuous and tepid. I don’t think we’ll see the economy come surging back; nor do I think we’ll see anything approaching an information-technology renaissance along the lines of the roaring 1990s. Those days are gone, folks, never to return — not to information technology, and not to Silicon Valley.
Still, mergers and acquisitions will occur, because companies that are in business want to remain in business. They’ll have to make acquisitions to diversify beyond slow-growth markets and to defend against competitive encroachments from equally desperate industry counterparts.
Given our long-term economic reality, let’s not mistake the acquisitions that will occur for signs of an impending rebirth of untrammeled tech prosperity. Most acquisitions will be strategically defensive or based on value buying (relatively low-cost or fire-sale transactions).
An example of the former type was announced yesterday. Adobe’s acquisition of Omniture was fundamentally defensive, driven more by fear of stagnant growth in its established product portfolio than by swaggering confidence in limitless growth. Adobe’s flagging numbers corroborate that assessment.
Even during tough times, mergers and acquisitions continue.