Financial constraints spurred buy-out of local tech company

Filed under News, Technology

Josh Robbins sold his Chicago-based technology business, Geckotech, to M5 Networks in November. Photo courtesy of Geckotech.

Facing a software overhaul that would cost him nearly $1 million, Chicago-based Geckotech founder Josh Robbins looked to a longtime competitor and strategic partner for help.

Robbins sold the business he started seven years ago to M5 Networks, a larger player in New York last year, seeing the buyout as an opportunity to leverage his competitor’s technology system and effectively grow his business, he said.

M5 formally acquired Geckotech for $8 million on Nov. 1, absorbing its staff, customers and database centers. Both companies provide hosted voice over Internet protocol.

Financial constraints often drive owners to sell their companies to larger competitors, a phenomenon accelerated by the economy’s slow recovery.

More mergers and acquisitions, despite economic trouble

Last year, the U.S. share of volume in announced mergers and acquisitions rose 14.2 percent to $822 billion, the New York Times reported earlier this month in an article featuring data released by Thomson Reuters.

While deal-making activity was low in the telecommunications industry, the publically traded companies that were active could count on such deals to increase their market value by over 50 percent, according to the data. Total telecom services industry deals in the U.S. totaled $25 billion in 2010.

But merger activity has not yet reached the highs it saw in 2007, according to the article.

“I think that this is not an environment for excessive risk-taking,” Robert E. Spatt, a partner with the Wall Street law firm Simpson, Thatcher & Bartlett, told the New York Times. “But we’re out of the bunker, and there’s a lot of stuff in the pipeline.”

M5 grows thanks to acquisition of Geckotech

For M5, acquiring Geckotech brought a new data center and distribution partners, giving them “a really strong presence in Chicago,” said Dan Hoffman, president and CEO of M5.

Geckotech’s customers now make up 11 percent of M5’s customer base, Robbins said.

“Small businesses and medium-size businesses are adapting this technology relatively quickly,” Robbins said. “Everybody’s pushing toward the cloud.”

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