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Archive for December, 2009

Here is a good article from Daily Markets.

“The technology sector has always been about The Next Big Thing, and while next year will be no exception, products and services purchased will more reflect the needs of consumers and businesses – unlike the past when more tech buys reflected “wants.”

Call 2010 the year of “necessary technology.”

While 2009 has seen a dramatic turnaround in the world’s stock markets, the rest of the key economic indicators – such as manufacturing, inventories, and jobs – have lagged behind. This has prompted less discretionary spending on technology, and even a postponement of some necessary purchases.

Slowly but surely businesses and consumers – while still extremely cautious – are seeing their own turnarounds. To aid them with their own recoveries, necessary technology that has emerged in the last two years will grab more mindshare as well as market share.

These necessary technologies will result in the deferred purchase waiting period seen last year coming to an end in 2010, giving a boost to three key technology businesses, including:

  • Semiconductors: The industry’s leading indicator is already making a comeback, and is poised for growth on the backs of almost every other business in the industry. One company in particular could see huge gains in the burgeoning smartphone market, and chances are you haven’t heard of it.
  • Mobile Devices: Taking computing on the road – be it in the form of a smartphone, netbook or tablet – will become more commonplace. The ripple effect from this will present a wide range of investment opportunities – from carriers to advertisers to the companies that make the phones.
  • Software and hardware: ” Do more with less,” already an oft-heard phrase in the jobless recovery, will continue to be heard. But new software and hardware doesn’t require an annual salary and benefits, so expect this category to finally bounce back.

Read the full article here.

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Here is a good summary from Shai Goldman on top events in the VC and tech industry of 2009.

“Given that we are just about at year-end, I wanted to provide a recap of some of the most memorable moments that took place in the venture capital and technology ecosystem.  Below is a list of  the 10 most important events:

First VC backed technology IPO –  OpenTable goes public at $20/share on May 21st.

First VC backed acquisition (above $500M) – Pure Digital acquired by Cisco for $590M.

First VC backed cleantech IPO – A123 goes public at $17/share on September 23rd.

Khosla Ventures raises $1.1B – in 2009 most VC funds were shrinking in size, yet Khosla Ventures was able to raise $1.1B, this event was a sign that Limited Partners (L.P.s) we actively seeking investment opportunities in the VC sector – September 1st.

Tesla Motors receives $465M from the D.O.E – First technology company to receive a loan guaranty – June 23rd.

Twitter raises a $100M VC round of financing – at a time when there are questions about the consumer internet sector, this funding provided some positive support that $ can be made in the sector – September 25th.

NASDAQ closes above 2,000 – August 3rd- the previous time NASDAQ was above 2,000 was September 30, 2008.

Dow Jones Industrial Average closes above 10,000 – October 14th – the previous time the Dow was above 10,000 was October 2, 2008.

Apple App Store gets more that 100,000 applications published – November 4th – as you may recall the App Store launched on July 10, 2008 and the creation of the iPhone and App Store has created opportunities for both VCs and Startups to make $$.

Facebook Connect is widely adopted by 60M users and 80K sites – the utilization of Facebook Connect has allowed startup companies a way to reduce the time / effort for their users to sign up for a particular service.”

Read the full article here.

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Here is some IPO news from Marketwatch.

After recent optimistic comments about an upcoming rebound in technology initial public offerings by several Silicon Valley venture capitalists and investment bankers, I decided to see if the reality lived up to the hype — and hope — and trolled through several regulatory filings to see what technology companies are in the queue to go public.

Last week, wheeler dealers at the Venture Summit Silicon Valley conference said there were a slew of technology companies working on S1 filings, the core regulatory document for an IPO. At least 50 venture-backed companies could seek to go public next year, possibly as high as 100, dealmakers said. See column on venture capitalists’ optimism here.

“It’s certainly going to start a lot more robust than 2009, which was completely dead,” said Scott Sweet, senior managing partner of the IPO Boutique. “The last three months of 2009, though, have been quite busy.”

Currently, though, it’s a rather motley crew of tech companies that have filed S1s to go public, and nothing yet that might have the buzz — or shall we say hype — of some of the widely-anticipated Silicon Valley names like Facebook, Zynga, or Tesla Motors.

That said, many look to be solid citizens, with revenue growth and earnings, but some firms are still losing money, not exactly an example of the new, improved IPO. Sweet said two tech IPO names that have the most chatter in this batch are Calix Networks Inc. and Fabrinet, both of which were founded during — and survived — the dot-com bubble and bust.

Calix Networks develops broadband access equipment for network service providers. Revenue jumped in 2008 to $250.5 million, up from $193.8 million in 2007. It’s still losing money and lost $17 million in 2008, an improvement from its loss of $26 million in 2007. Founded during the boom in August, 1999, Calix is based in Petaluma, Calif., a farming area north of San Francisco, dubbed Telecom Valley, a once fertile area for telecom startups as well. Earlier this year, it raised $100 million in additional venture.

Fabrinet was also founded in August 1999 and started operating in January 2000. Its corporate headquarters are in the Cayman Islands. It offers contract manufacturing services for developers of optical communications components, one of the most-hyped hardware areas of the late ’90s. Fabrinet designs and makes products like application-specific crystals, prisms, mirrors and laser components for six of the ten largest optical communications components companies worldwide.”

Read the full article here.

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Here is an article from Wall Street Journal.

“President Barack Obama has recently unveiled bold new plans for government programs and tax breaks to try to boost the economy. These initiatives have no price tag yet, but they will require significant spending.

You can debate whether new highway and bridge projects and sundry tax breaks will help the economy. That’s a political question. But as the U.S. government piles borrowing atop more borrowing, it begs a financial question that is not utterly ridiculous: Are your U.S. Treasury bonds safe?

On its face, the probability of the U.S. defaulting on its spiraling debts seems highly unlikely. But that’s not what the markets think. The price of insurance against such a default—using derivatives known as credit default swaps—has jumped by more than 50% in the private market in recent months. According to CMA DataVision in London, a specialist in these contracts, it will now cost you 0.34% of the principal per year to buy default insurance on U.S. government bonds. If you held $1 million in Treasurys, insuring against default would cost you $3,400 for the year. A few months back, insuring those bonds would’ve cost less than $2,000.”

Read the full article here.

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Here is an interesting article from Bloomberg.

“Dec. 8 (Bloomberg) — Moody’s Investors Service said the top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because public finances are worsening in the wake of the global financial crisis.

“The deterioration has been pretty severe,” said Pierre Cailleteau, managing director of sovereign risk at Moody’s, in a Bloomberg Television interview in London. “We expect a pretty strong policy response in the next couple of years in order to keep the debt in the Aaa range. We expect them to bend but not to break.”

The U.S. and U.K. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France, Moody’s analysts led by Cailleteau said in a report today. None of the top-rated countries is “vulnerable,” or have public finances that are “stretched beyond the point of ‘no return’ to the Aaa category,” New York-based Moody’s said.

The U.S.’s debt burden will climb to 97.5 percent of gross domestic product next year from 87.4 percent, the Organization for Economic Cooperation and Development forecast in June. National debt in the U.S. climbed to $7.17 trillion in November. The U.K.’s public debt will swell to 89.3 percent of the economy in 2010 from 75.3 percent this year, according to the OECD.

“There has been a huge increase in debt-to-gross-domestic- product ratios as a result of the crisis,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “It’s right that there should be a lot of attention and pressure on these numbers.”

‘Resistant’ Countries

All Aaa rated governments are affected by the global financial crisis, with differences in their impact and ability to respond, Moody’s said. “Resistant” countries, which also include New Zealand and Switzerland, started from a more robust position and won’t see debt exceeding levels consistent with their Aaa status, Moody’s said.

Moody’s defines “resilient” countries as “Aaa countries whose public finances are deteriorating considerably and may therefore test the Aaa boundaries, but which display, in our opinion, an adequate reaction capacity to rise to the challenging and rebound.”

The cost of protecting U.S. debt from default was unchanged at 32 basis points, or $32,000 a year to protect $10 million of the nation’s bonds from default for five years, according to CMA DataVision prices. That compares with a peak of 100 basis points in February and 20 basis points in October.”

Read the full article here.

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Here is some IPO thoughts from Washington Technology.

“I generally don’t make predictions, but I keep hearing tidbits from people that as the economy continues to improve, the government market should see several companies make the plunge into the public markets.

Global Defense Technology and Systems Inc. has done pretty well since it went public a couple weeks ago. Share prices have not closed below the $13, which was the price at the initial public offering. The shares have stayed between $13 to $14 mark, with the most recent closing at $14.36.

They haven’t caught the world on fire, but they’ve been respectable.

I’m sure executives across the market are watching and wondering, “Are we ready?”

From the people I’ve been talking to, three names are the most obvious – Booz Allen Hamilton Inc., Vangent Inc. and TASC.

With all three owned by private equity (Booz Allen with the Carlyle Group, Vangent with Veritas Capital, and TASC with General Atlantic and Kohlberg Kravis Roberts and Co. once that deal closes) some sort of exit strategy is always in the mix. While a sale to an existing company is possible, the size of these three, particularly TASC and Booz Allen, make a sale highly improbable.

But I don’t expect any of these three to be in a rush to do an IPO. First, their owners have a reputation for patience, and second, they are good performers and should be throwing off a lot of cash, which again means that they shouldn’t rush to Wall Street.

After these top-tier candidates, speculation gets much wider and perhaps wilder.

In the potential IPO pool, I would put companies such as American Systems, Apptis Inc., Pragmatics, Alion Science and Technology, and STG Inc. I’m sure there are others I’m missing.

The IPO challenge for some of these companies is size. Global Technologies Inc., with about $200 million in annual revenue, was about as low on the size scaled as you’d want to get.”

Read the full article here.

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Here is an interresting read from BusinessWeek.

For the mergers-and-acquisitions market, there is no doubt 2009 is ending better than it began. The year is winding up with a “sigh of relief,” says Morton Pierce, chairman of the M&A practice at law firm Dewey & LeBoeuf.

In the past month the M&A market has built up some momentum. According to Bloomberg, deals in North America were valued at $115.6 billion in November, the most since September 2008. Compare that with late 2008 and early 2009, when dealmaking either wasn’t happening at all or was centered in areas where deals absolutely needed to happen, such as failing financial institutions that needed buyers at any price. Deal volume in November was five times February’s volume of $22.5 billion.

Investors looking ahead to 2010 are wondering if this uptick in M&A can continue and where it will occur. Acquirers almost always buy at a premium, so traders can profit from correctly betting which industries will attract the most bidding activity.

Small Tech Deals

In 2009, Internet stocks, the investment and financial services industries, software, and oil and gas production were among the most active, according to Bloomberg data. Expect more dealmaking among technology stocks, say M&A experts. Oracle Corp. (ORCL) is battling European regulators to finish its $7.4 billion acquisition of Sun Microsystems (JAVA).

Such acquisitions, and especially much smaller deals, are a way of life for tech firms, says Daniel Mitz, a partner at law firm Jones Day who specializes in tech deals. “A lot of the innovation comes from smaller companies,” Mitz says. Dealmaking in tech slowed but didn’t stop during the downturn. There could be significant pent-up demand, Mitz says. “This is an industry that is ripe for M&A.”

One driver of a rebound for M&A in tech will be the strong financial positions of many tech firms, says Nadia Damouni, editor of dealReporter Americas, which tracks the M&A market. Another “cash rich” sector is health care, she says, but here the prospects for an M&A rebound are harder to read. The reason: Uncertainty surrounding the federal overhaul of the U.S.health-care system proposed by President Barack Obama and under discussion in Congress. “They’re at the whim of health-care reform,” Damouni says of the many insurers and health-care services companies that could be M&A targets at some point.

In health care, the key ingredient for dealmaking is “stability,” says Bob Filek, a partner at PricewaterhouseCoopers Transaction Services. If health-care reform passes—or even if it doesn’t—acquirers will want some certainty about what federal policy will mean for health care before making bids. Filek envisions “a couple of scenarios where [the result could be] a lot of M&A activity.”

Read the full article here.

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