Facebook's Instagram Buy Shows Change Of Strategy Pre-IPO

| About: Facebook (FB)

By Colleen Taylor

The very surprising announcement this morning that Facebook is acquiring Instagram for $1 billion says a lot about the state of the web startup ecosystem and the tech world at large — and no doubt, a large part of the industry (and the blogs that breathlessly cover it) will be analyzing what it all means for a while. But for a big part of the financial sector, the deal signals one thing: Facebook has officially made its debut as a major buy-side player when it comes to mergers and acquisitions.

Not surprisingly, Mark Zuckerberg is already trying to defuse this perception (he is a busy guy already, and sell-side M&A folks can be a pushy bunch when they see a company that’s ready to buy.) In his blog post announcing the Instagram buy, Zuckerberg acknowledges that the acquisition is a huge deal, but quickly says that it’s not necessarily the start of a shopping spree:

“This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users. We don’t plan on doing many more of these, if any at all.”

Even so, once Facebook filed official documents for its initial public offering, it became clear that a graduation of sorts was at hand. After years of being seen as a potential M&A target for the likes of Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG), Facebook’s IPO would make it more of a peer to those companies, and join them on the list of potential acquirers eyed hopefully by the ever-growing landscape of venture-backed web startups (and the angel investors and venture capitalists who make bets on them.)

Up until now, Facebook’s acquisitions have been more in the acqui-hire space — buying small startups at relatively low prices, largely to add their talented employees to Facebook’s staff. The Instagram deal, valued at some $1 billion, means that Facebook is now prepared to make big ticket, materially sized acquisitions as well. It makes sense in the run-up to Facebook’s IPO, in which it is on track to raise some $5 billion in cash — a nice chunk of change that could be put toward any number of interesting purchases in the future.

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