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Archive for October, 2009

Here is some possitive news from VC Circle.

“The ongoing recovery in the economy and credit markets has made tech companies look for ways to come out on top.

The U.S. information technology services sector is likely to be a focus of merger and acquisition activity as its companies are among the most attractive in the technology space.

A rebound in tech spending has increased the appeal of IT services companies and put them in the crosshairs as deal momentum picks up in the industry.

The ongoing recovery in the economy and credit markets has made tech companies look for ways to come out on top, and they have shown a willingness to pay hefty premiums in a sector that has historically commanded high prices.

IT services firms have a recurring revenue stream, high margins, a strong growth outlook and impressive returns on investment, making tempting targets for buyers. They offer consulting, software services, business process outsourcing, systems integration and interactive marketing.

Cash-rich technology giants plan to strengthen their portfolios, and smaller firms want to stay in the game through acquisitions as their larger rivals become even more formidable.

Attractive acquisition candidates include Sapient, Computer Sciences, WNS, Amdocs, Cognizant Technology and ExlService, analysts said.

Consolidation is under way. In September, Xerox Corp said it would buy Affiliated Computer Services Inc in a deal valued at about $5.5 billion, and Dell Inc said it planned to buy Perot Systems Corp for about $3.9 billion.

“The pattern here is that you have commoditizing tech product companies looking for a strategy that’s better than doing nothing,” Sanford C. Bernstein analyst Rod Bourgeois said.

“They’re looking at the IT services industry to juice up their struggling tech product business.”

Possible acquirers could be tech giants such as IBM, Hewlett-Packard or Cisco, European players like BT or Deutsche Telekom and Asian companies like Hitachi, Fujitsu or NEC, analysts said.

“There’s definitely going to be some strategic acquisitions — there’s no doubt about that,” Goldman Sachs analyst Julio Quinteros said. “It’s just, how much are you willing to pay? And would you rather wait for the market to come back a little bit?”

The recurring revenue stream that IT services firms have gives them more visibility and stability.

“What’s driving a lot of this is the evolution of hardware companies looking for more stability and recurring revenues that are typically associated with services models and by the same token software companies potentially looking for the same thing,” Quinteros said.

Hardware and software companies want to diversify their portfolios by adding services, to help them survive and even prosper through tough times.

“What’s alluring about services for tech product companies is first the precedent of IBM and HP coupling products with services to be able weather the downturn well,” Bourgeois said.

In 2008, Hewlett-Packard acquired EDS for $13 billion in what is considered the biggest acquisition in the space ever. In 2002, IBM bought PwC Consulting from PricewaterhouseCoopers for about $3.5 billion.

“Vendors are trying, to some extent, to emulate the integrated model that IBM really pioneered when they got into the services business years ago,” UBS analyst Jason Kupferberg said. “HP followed suit buying EDS. Now you’re seeing a continuation of that theme.”

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Here is some job news from Yahoo Finance.

CHICAGO (AP) — Consumers’ confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak, a private research group said Tuesday, fueling speculation that an already gloomy holiday shopping forecast could worsen.

The Consumer Confidence Index, released by The Conference Board, sank unexpectedly to 47.7 in October — its second-lowest reading since May.

Forecasters predicted a higher reading of 53.1.

A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

The index has seesawed since reaching a historic low of 25.3 in February and climbed to 53.4 in September.

Economists watch consumer confidence because spending on goods and services by Americans accounts for about 70 percent of U.S. economic activity by federal measures. While the reading doesn’t always predict short-term spending, it’s a helpful barometer of spending levels over time, especially for expensive, big-ticket items.

Recent economic data, from housing to manufacturing, has offered mixed signals but some evidence that an economic recovery might be slow.

But on Tuesday, the figures showed that shoppers have a grim outlook for the future, The Conference Board said, expecting a worsening business climate, fewer jobs and lower salaries. That’s particularly bad news for retailers who depend on the holiday shopping season for a hefty share of their annual revenue.

“Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays,” said Lynn Franco, director of The Conference Board’s Consumer Research Center.

Economists expect holiday sales to be at best flat from a year ago, which saw the biggest declines since at least 1967 when the Commerce Department started collecting the data.”

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Here is a cleantech story by way of Delaware Online.

Working-class Delaware came out in force Tuesday to celebrate Fisker Automotive’s plans to buy the vacant Boxwood Road plant near Newport and return the state to the business of building cars, potentially creating thousands of jobs in the process.

In front of hundreds of auto workers — past and future — and seemingly every elected official in Delaware, state and national leaders and the startup automaker’s CEO touted the company’s plans to build plug-in hybrid electric cars at a factory that refuses to stay closed.

The Boxwood plant looked doomed in 1993 when General Motors said it planned to close it. The company later changed its mind.

Complete coverage: Fisker’s plans for Boxwood

The factory was again left for dead in July, when GM followed through on ending production there in the wake of its historic bankruptcy filing, costing about 550 Boxwood Road workers their jobs.

Tuesday’s event celebrated an eventual resurrection of the 62-year-old plant, this time as a catalyst for what supporters hope is a seismic shift in the auto industry, the transition from gasoline to electricity as the fuel for cars.

“Since we moved from the horse to the gasoline engine, there has never been such a big change as is happening right now,” Henrik Fisker, co-founder and CEO of his namesake company, told the crowd.

United Auto Workers union members mixed with state government officials and corporate leaders on the Boxwood plant floor Tuesday, everyone savoring an economic development victory for tiny Delaware over larger states that would have loved to lure Fisker.”

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Here is some market observations from Bloomberg.

“Oct. 26 (Bloomberg) — The U.S. Standard & Poor’s 500 Index is about 40 percent overvalued and headed for a drop as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers.

Declines are likely because banks will need to sell more shares to raise capital, the economist and president of research firm Smithers & Co. said in an Oct. 23 interview at Bloomberg’s Tokyo office. The closing price on Oct. 23 of 1,079.6 was 40 percent above 771.14, a level last seen in March, according to data compiled by Bloomberg.

“Markets are very vulnerable to an end of quantitative easing,” said Smithers, 72, who recommended avoiding stocks in 2000 just as the U.S. benchmark entered a two-year bear market. “Central banks, they’ve got to stop some time and if that happens everything will come down.”

Central banks from the Federal Reserve to the Bank of England last year embarked on unprecedented measures to flood credit markets with cash in order to rescue the global financial system from the worst crisis since the Great Depression.

Those purchases may be nearing an end, said Smithers, who worked for 27 years at S.G. Warburg & Co. where he ran the investment management business. The Fed’s emergency liquidity programs including the Term Auction Facility and commercial paper purchases have shrunk as the central bank completes the scheduled purchases of housing debt and Treasuries. Bank of England policy makers voted unanimously at their latest meeting to leave the asset purchase program unchanged, minutes showed.”

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Here is some tidbits around MSFT aquistion of Opalis Software Inc. from Computer World.

“Microsoft Corp. has acquired systems management vendor Opalis Software Inc. for about $60 million, according to an analyst report.

Brenon Daly, an analyst at The 451 Group, blogged earlier this week about the deal, citing unnamed financial and industry sources.

The VC-backed Mississauga, Ontario, start-up was making about $10 million annually from sales of software for automating IT processes, according to Daly. It also partnered with Microsoft in the spring (download PDF), integrating its software into Microsoft’s System Center management platform.

Daly’s report was echoed by blogs and tweets.

Through a spokeswoman, Microsoft said it is not commenting on rumors and speculation. Opalis, meanwhile, did not immediately respond to a request for comment.

Opalis’ CEO, Todd DeLaughter, was previously general manager of Hewlett-Packard Co.’s OpenView systems management division.

Daly said the Opalis acquisition would be the fourth in this market in the past two years. HP bought Opsware for $54 million in 2007, while BMC Software Inc. acquired RealOps for $53 million. CA Inc. bought Optinuity last year. One key difference, he said, is that Opalis’ revenue appeared to be higher than its counterparts’ at the time of acquisition.”

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Here is an interesting article from Business Week.

“If you’re a BlackBerry (RIM) or iPhone (AAPL) user (see: addict), then you are partly responsible for the great Internet buildout. Those cute apps that look up baseball scores or let you log into Facebook eat up enough bandwidth to put the backend infrastructure of phone companies under pressure, forcing them to upgrade their networks with new and fancy gear. I’ve described this as the great Internet buildout, and it’s one of the main reasons we’re seeing a wave of mergers and acquisitions in tech land.

Equinix (EQIX), a data center provider, said on Wednesday it is going to buy competitor Switch & Data for about $689 million in cash and stock. From the release:

“Equinix will integrate Switch & Data’s data center business and operations, including the company’s 34 data centers in 22 markets in the U.S. and Canada. The acquisition will add more than 1 million gross square feet of data center capacity, bringing Equinix’s total global footprint to 79 data centers in 34 markets and more than 6 million square feet across the North American, European, and Asia-Pacific markets.”

Spending More Time on the Web

And now Tellabs (TLAB), a Naperville (Ill.)-based maker of telecom equipment, says it’s buying WiChorus, a mobile Internet equipment maker based in San Jose, Calif. Tellabs is paying $165 million in cash for the upstart company, whose venture backers include Pinnacle Ventures, Accel Partners, Mayfield, and Redpoint Ventures and which counts Clearwire among those that use its products. WiChorus’ SmartCore platform competes with the likes of Starent, which itself is in the process of being acquired by Cisco Systems (CSCO) for $2.9 billion.

What’s really going on is pretty simple: Today’s consumers are increasingly spending more time on the Web—and they’re using the mobile Web almost constantly. From my post The Great Internet Buildout Continues.

“There are 444.3 million broadband subscribers n the world, according to the Broadband Forum, and that number is only going to increase over the next few years as emerging telecom economies such as India, Brazil, and Russia ramp up their Internet efforts. A whopping 250 million people are going to connect to the Internet wirelessly by the end of 2009. Just imagine the bandwidth and computing horsepower needed if all of them started streaming movies from Netflix, listening to music by visiting Spotify, and sharing videos and photos via Facebook.”

Pressure on Mobile Networks

A Facebook executive pointed out this week that the company’s users spend a collective 8 billion minutes a day on the site. If my math is right, that’s roughly 25 minutes per user. (Facebook has 330 million users.) Like me, many are busy uploading their photos to the unstoppable social network.

As higher speeds become available on our mobile handsets, thanks to 4G wireless technologies such as LTE, we will to be spending even more time on these networks. The carriers need to make sure that these networks perform to consumer expectations, otherwise they’ll put their fast-growing data revenue stream at risk.”

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Here is a interesting article from WSJ Online.

“Twitter Inc.’s $100 million funding round drew considerable attention for its massive size, but it’s not the largest venture deal so far this year. That round actually tied for the fourth largest, according to data compiled from Dow Jones VentureSource.

Here’s a list of the Top 10 venture capital rounds through the third quarter. The deals are impressive considering the cloud hanging over the venture industry. Besides Twitter and another dot-commer, Facebook Inc., these companies range from massive clean-technology projects and health-care plays to wireless equipment makers and, in one case, a waste-collection service.

#1 Solyndra Inc., Fremont, Calif. – $286 million

The solar panel maker is on the federal government’s hot-list, receiving a $535 million loan guarantee in September to build a second manufacturing plant and create hundreds of jobs. That loan encouraged venture firms to invest at least another $198 million in Solyndra. (The company announced that amount in September though a spokesman told VentureWire the round’s total was even higher.) Argonaut Private Equity, an investment vehicle for Oklahoma billionaire George Kaiser, led the round. Others participating in the round weren’t disclosed, although Solyndra’s investors include CMEA Capital, Redpoint Ventures, RockPort Capital Partners, U.S. Venture Partners and Virgin Green Fund, which together have invested more than $600 million. Solyndra plans to finish building its plant in Fremont by the end of next year and ship its first product in early 2011.

#2 Clovis Oncology Inc., Boulder, Colo. – $146 million

In May, Domain Associates, New Enterprise Associates and others bet $146 million that former executives of cancer-drug company Pharmion Corp., which sold for $2.9 billion last year, will repeat that success with newly formed Clovis Oncology. Also participating were Pharmion investors Aberdare Ventures, Abingworth Management, ProQuest Investments and Versant Ventures, and newcomer Frazier Healthcare Ventures. Like Pharmion – which raised $145 million in venture capital and convertible debt before going public in 2003 – Clovis will acquire cancer therapies, develop them through to regulatory approval in the U.S. and Europe, and market them.

#3 Small Bone Innovations Inc., New York – $108 million

The orthopedic device company, founded in 2004, has developed a portfolio of products for thumb, hand, wrist, elbow, foot and ankle surgeries. The STAR Ankle total joint replacement system, one of Small Bone’s flagship products, received Food and Drug Administration clearance in May. The $108 million Series D round, which closed in April, included new investors The Family Office of Bahrain, Goldman Sachs & Co., Khazanah Nasional Brhd. and Malaysian Technology Development Corp. and existing investors 3i Group, Axiom Venture Partners, NGN Capital, TGap Ventures and Trevi Health Ventures. Executives told VentureWire they expect Small Bone to reach profitability in 12 months, and unlike many medical device companies which become acquisition targets, could grow into a full-fledged company in its own right.

#4 (Tied) A123 Systems Inc., Watertown, Mass. – $100 million

The electric-car battery maker’s initial public offering last month captured investors’ imagination – and wallets – with a vision of a future where power is stored intelligently and deployed efficiently in a world of lower carbon emission. Before the IPO, A123 Systems gathered $100 million in Series F funding in June from investors Gururaj Deshpande, General Electric Co., North Bridge Venture Partners and Qualcomm Inc. A123 also received a $249.1 million grant from the U.S. Department of Energy grant, the second-biggest awarded as part of a $2.4 billion program to start up a domestic battery industry. The company, which has a deal to supply Chrysler Group LLC with batteries for planned electric vehicles and hybrids, is said to be in the late stages of negotiations for another DOE loan worth as much as $235 million.

#4. (Tied) Facebook Inc., Palo Alto, Calif. – $100 million

Facebook recently reached an important milestone for an Internet company, becoming cash-flow positive as it also grabbed its 300 millionth member. Will an IPO be coming soon? Executives won’t say, but the company’s investors are counting on a spectacular exit at some point given how much money they’ve invested over the years. One of the newest investors is Digital Sky Technologies, a Russian Internet investor that put $100 million into Facebook in July while also paying another $100 million to buy out shares of any selling employees.

#4 (Tied) Open Range Communications Inc., Greenwood Village, Colo. – $100 million

One Equity Partners committed $100 million to Open Range at the start of the year to help it roll out wireless broadband and Internet services in rural America by the end of the year. The deal followed a $267 million loan from the U.S. Department of Agriculture’s Rural Development Utilities Program. Founded in 2004, Greenwood Village, Colo.-based Open Range hopes to reach more than six million Americans in 546 underserved and rural communities across the U.S. lacking access to traditional DSL or cable broadband service providers. Open Range plans to use WiMAX technology to enable access to its planned wireless service with a simple plug-in device.

#4 (Tied) Twitter Inc., San Francisco – $100 million

At a $1 billion valuation, Twitter’s $100 million fourth round proved the Web messaging company is here to stay, at least longer than some thought. The funding came from some unlikely sources, including T. Rowe Price Group, better known for its retirement funds than venture capital investing, Morgan Stanley, which invested from its asset management business, and Insight Venture Partners, a growth-equity investor that doesn’t typically put money in pre-revenue companies. Other investors in Twitter include Benchmark Capital, Institutional Venture Partners, Spark Capital and Union Square Ventures, which didn’t reinvest in the latest round reportedly because the deal priced the firm out. Now the pressure will be on for Twitter to live up to the hype.”

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