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Archive for February, 2010

Here is some good news from CIO update.

“After what can only be described as a desolate merger and acquisition landscape throughout most of 2009, a new study conducted by PricewaterhouseCoopers predicts an upswing in both the volume and value of deals this year. And mergers and acquisitions in the high-tech sector will be leading the charge.

According to the US technology M&A insights 2010 study, total closed deals in 2009 fell 53 percent and were valued at just under $36 billion, way down from 2008 when companies completed purchases valued at $77 billion. However, a nice little surge in technology deals in the latter portion of 2009 appears to have given the market some momentum with 85 percent of the value of the $36 billion in mergers and acquisitions last year coming in the final six months.

“Driven by the surge of technology deals completed in the latter half of 2009, PwC expects deal activity to continue apace in 2010, albeit still below the levels seen in 2006-07,” the report said.

Anyone lamenting the moribund state of the technology M&A market can’t blame Oracle (NASDAQ: ORCL). The software giant continues to continues to make purchase after purchase in its ambitious quest to unseat SAP (NYSE: SAP) as the world’s largest business application maker and take on rivals IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT) and HP (NYSE: HPQ) as it looks to become the world’s leading systems provider. Oracle has already made a pair of acquisitions early in 2010 after closing its blockbuster purchase of Sun Microsystems.

IBM also loosened its purse strings in effort to keep pace with Oracle and other cloud-computing providers. It’s a trend that PWC expect will continue throughout 2010. “There is much enthusiasm that the IPO market will make a big comeback in 2010,” the report’s authors wrote. “Add to this the potential return of private equity investors to the negotiating table and the result is improving exit multiples and more satisfied sellers.”

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Here is a good article written by David Gold posted at The Cleantech Group.

“With all the complexities of cleantech policy and technologies, there is only one simple thing needed for an explosion of competitive clean technologies: an increase in the price of fossil fuels.

The amount of R&D that will need to be invested in clean technology in order for them to become competitive is much greater with low fossil fuel prices. And, the lower those prices, the less appetite the private sector has for making such investments.

This leaves a much-increased burden on the back of government through grants and subsidies—a back that is close to being broken from debt.

While clean technology development is absolutely necessary, technology development takes time and, often, a long time. And technology development is fraught with uncertainty…nobody ever knows a priori whether such efforts will be successful and how long they will take. Believe me… every venture fund in the world would love to be able to know that! But they don’t.

However, virtually every venture fund and researcher will acknowledge that significant advances usually take much more time and more money than expected.

In an environment of relatively low fossil fuel prices with high price volatility, grants and subsidies for an amount of time and at a level that will make any permanent and meaningful difference are simply unsustainable. So, for all the focus on “cleantech stimulus,” the most important thing that government can do is to affect change in the cost of fossil fuel alternatives.

If we had higher fossil fuel prices, or even just clearer visibility and certainty about future increases, the free market would make dramatic increases in investment in clean technology. When the free market sees an opportunity to make a profit, it moves extremely fast.

Government actions that put in motion increases in the cost of fossil fuel alternatives, even if those increases are phased in over many years, could have an enormous impact on the money invested by the private sector in alternatives (and a corresponding decrease in need for government subsidies and grants).

This, in turn, could further accelerate technology advances, leading to a more rapid convergence of the time when various technologies can competitively reach the mass market.

Given that fossil fuels are a finite resource, it is a fait accompli that eventually alternative energy and energy efficiency technologies will become so compelling that they will dominate the market. But the future of fossil fuel prices in the relatively near term (e.g., the next decade or two) is far from certain (article), as both general economic conditions and new discoveries such as those in Venezuela’s Orinoco Belt play a role.

If we didn’t care about global warming, national security or economic security, there would be little need to do anything but let the market take its course. But irrespective of personal policy hot buttons, most would agree that we do not have the luxury of the amount of time for this transition to take on its own.”

Read the full article here.

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In 2001 Gerbsman Partners predicted that the Internet would be a “Dot Bomb” and in 2005 forecasted that Wireless would be the “Next Dot Bomb”. Gerbsman Partners also forecasted the coming of a major “Black Swan and Tipping Point” event in May 2007. Now, in February, 2010, Gerbsman Partners is prognosticating, “Cleantech, the next Bubble to Burst”.

In any typical venture capital/private equity investment cycle, the investors re-evaluate their investments at the 2-3 year mark. Cleantech investments have either reached that milestone or or will be there at some point during 2010. It should be expected that most Cleantech investments that were formed 2-3 years ago require additional capital this year to maintain their viability.

Since the majority of Cleantech capital has been provided by government funding, mainly to major companies and based on Gerbsman Partners 30 year track record for maximizing enterprise value of venture capital backed Intellectual Property companies, we predict a high percentage of Cleantech companies will fail to obtain the necessary additional funding to survive. Specifically, in this challenging capital and economic environment, we expect a higher rate of Cleantech companies failing. Gerbsman Partners proprietary and proven “Date Certain M&A Process” presents a viable alternative for equity sponsors to maximize the enterprise value of their Cleantech portfolio companies.

While the Cleantech industry has enjoyed significant growth and increased funding over the last few years, there are warning signs that a significant drop off is on the horizon. Gerbsman Partners has identified the following warning signs and symptoms:

  • Total Venture Capital investment in Cleantech decreased to $5.6 billion in 2009, down from $8.4 billion 2008, and the lowest level since 2006.
  • Additionally, North America´s share of clean technology venture capital was down from 72% in 2008 to 59% in 2009, a four year low.
  • 2009 saw the lowest number of IPO´s in nearly a decade.

In addition to these industry-wide trends, there are some sector specifics:

Solar Power:

  • Solar panels, as well as other solar technology, experienced a steep price drop in 2009 and that trend is expected to continue. While that´s good news for consumers, suppliers now have too much manufacturing capacity and, thus, supply has vastly overtaken demand.
  • The rapid expansion and resulting over-supply caused a sharp rise in start-up failures in the 2nd half of 2009, along with several disastrous IPO´s.
  • While cost of production has dropped, issues with solar power storage methods continue to hamper the industry. Between 30 and 45% of all Photo Voltaic solar power is lost before it can be used, prompting some investors to look elsewhere for efficient renewable energy.

Biofuels:

  • While some advances in research were made within Biofuels in 2009, most forms of first-generation biofuels are uneconomical, even after substantial government funding.
  • Policy barriers continue to slow this sector´s growth. Government requirements and restrictions on biofuel research and development have increased every year for the last decade with no change in sight.
  • At the heart of the government´s policies lies the “food vs. fuel” debate (diverting farmland or crops for essential biofuel production space), posing strong opposition to continued innovation from lobbyists and special interest groups.

Wind Energy:

  • Wind turbine manufacturing dropped between 15-20% in 2009, compared to the prior year.
  • New project announcements were also down by 20% in 2009, with few domestic programs on the horizon. Without these new projects, a boom within the sector seems highly unlikely – especially when considering that wind constitutes less than 2% of the total US electricity supply when functioning at current total capacity.
  • Inadequate transmission capacity remains a significant barrier to further development, with nearly 300,000 MW of wind capacity held up in a pipeline bottleneck due to transmission limitations.

Geothermal Power:

  • Geothermal power is twice as expensive as Solar Power and three times as expensive as Wind Power. This discrepancy is mainly due to the comparative difficulty in cultivating Earth´s heat – deep drilling is expensive and no new, viable cultivation methods figure to make a splash anytime soon.
  • To be both usable and economical a drilling site must have hot magma near the surface, an adequate volume of relatively pure hot water or steam, a surface water source for cooling equipment, and close proximity to power transmission lines. So, even in promising areas, economically usable sites are few and they are difficult to locate.
  • Private investing in Geothermal Energy ranked 8th among Cleantech sectors in 2009 and hasn´t placed in the top five in the last decade.

Preservation of Enterprise Value

During the Internet/Technology meltdown and the recent financial crisis of 2008-09, Gerbsman Partners maximized enterprise value for under-performing, under-valued and under-capitalized VC technology, life science and medical device companies and their Intellectual Property through:

  • The stabilization, wind down/orderly shut down of 60 companies through the sale, M&A or joint venture of the company’s Intellectual Property.
  • The termination/restructuring of over $ 790 million of prohibitive real estate, equipment lease and/or sub-debt obligations.
  • Crisis Management services that minimized potential stakeholder exposure and insured that management, stakeholders and Board of Directors met their fiduciary obligations.

In January 2010, Gerbsman Partners again identified similar characteristics in the Cleantech arena.

Domain Expertise – Cleantech

Gerbsman Partners marketing, research and focus in the Cleantech sector includes organizing meetings and establishing relationships with leading Manufacturers, Service Providers, Developers and Equity Investors. As a result, Gerbsman Partners has significant Domain Expertise in the Cleantech area.

Besides describing the current status of the Solar Power, Smartgrid, Geothermal and other Cleantech markets, our research has uncovered a number of challenges in the Cleantech industry.

Examples Include:

  • The oversaturation of the Solar Panel and Energy Efficient Lighting markets, where previously thriving products became so cheap to produce that the resulting oversupply set off a chain of mergers and bankruptcies for companies manufacturing them (Former success stories OptiSolar and SunEdison chief among them).
  • The price of natural gas remains at an all-time low. Historically, when natural gas prices are low, investment and research within Cleantech plummet substantially, as was the case in ´09.
  • Cleantech relies heavily on government funding. The US Government provided $67 billion in stimulus money, loan guarantees and grant programs to renewable industry in 2009. While the funding helped with the lack of private money, there is no guarantee that the government´s aid is sustainable in the current economic environment.

Gerbsman Partners and its Board of Intellectual Capital are available, if appropriate, to strategize and develop action plans for maximizing value of challenging Intellectual Property based technology, life science, medical device and now Cleantech companies.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. In the past 60 months, Gerbsman Partners has been involved in maximizing value for 60 Technology and Life Science companies and their Intellectual Property and has restructured/terminated over $790 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington, DC, Alexandria, VA, San Francisco, Europe and Israel.

For more information, please contact Steven R. Gerbsman at: steve@gerbsmanpartners.com

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Here is some interresting thoughts from CNET.

“With investors getting smarter and start-ups getting bought, the mood is brightening in green tech. But the high-profile companies seeking to go public this year have some industry watchers talking bubbles.

For proof, investors point to the spate of planned initial public offerings, including electric car maker Tesla Motors, solar company Solyndra, and biofuels maker Codexis. Smart-grid company Silver Spring Networks and biofuels maker Amyris are rumored to be on deck.

Long-term trends may favor innovative green companies, as concerns about energy resources and the environment grow. But that doesn’t mean this year’s leading companies can navigate the complex regulatory and financial environment to become successful companies, said Jack Robinson, founder of Winslow Management, which focuses on environmentally oriented public companies.

“Valuations seem to be ahead of themselves,” Robinson said. “Some of the people [in venture-backed green-tech companies] don’t have the history and don’t understand the pitfalls that need to be addressed from a technology, market, regulatory, and political point of view.”

An example of a company he considers highly valued is lithium ion battery maker A123 Systems, which went public last September. In addition to raising $371 million, it raised the hopes of many other young energy companies.

Investor Rob Day of Black Coral Capital did an analysis of four recent IPO filings in the green-tech area and was concerned when he found that their unofficial revenue numbers were far below the amount of money put into them.

Nonetheless, even early misfires don’t mean investors should write off the whole sector. The high-profile companies that have filed to go public aren’t the best indicators of what’s to come as many other companies could raise funding through private equity sources, rather than tapping the public stock market, Day argued.

“My worry is that if these IPOs are perceived later on this year as having been unsuccessful, it’ll once again set back the entire clean tech venture industry, because of the example it sets in terms of lack of (financial) exits,” he wrote.

Netscape moment ahead?
Even with the worries over financial returns for investors, there’s a reason that IPO hopefuls have gotten as far as they have. It’s widely recognized that Tesla Motors and Solyndra, for example, have developed innovative technologies. Tesla’s $109,000 Roadster has become a darling among the well-heeled and its planned Model S sedan, priced at about $57,000 before tax credits, has legions of fans even though it won’t be built for two more years.

Solyndra has developed a solar collector designed specifically for flat commercial rooftops. In its first installations, the company touts how quickly these collectors, which use curved thin-film solar cells, can be installed, which brings down the overall system cost.

As with many green-tech upstarts, though, both companies have big-time challenges. Solyndra and Tesla borrowed hundreds of millions of dollars from the U.S. Department of Energy to build manufacturing facilities and they face powerful competition, in the form of incumbent automakers and low-cost Chinese solar panel producers.”

Read the full article here.

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Here is some interresting pointer around Cleantech and Investments from Techpulse 360.

“U.S. venture firms are taking a more circumspect view of clean-tech investing. Less flash, more focus on profits.

That could lead to more start-ups trying to build businesses with less money.

According to a recent survey, substantial sums of money continue to flow into the industry. Ernst & Young reported Monday that $2.6 billion went into clean-tech start-ups last year, a noticeably more optimistic assessment than last month’s MoneyTree survey, which posted a figure of $1.9 billion. The higher sum suggests VCs were significantly more active last year than may have been thought.

The E&Y work also uncovered a second detail that didn’t show up in the MoneyTree study – which was conducted by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters.  While investment dollars fell 45 percent in the fourth quarter, the number of deals were up – 21 percent to 62. More deals, smaller sums of money per company, more room for profits.

The MoneyTree work found that the number of deals in the quarter fell to 47 and that overall dollars declined 58 percent.

It is hard to know which of the surveys is more accurate. But the prospect of venture capitalists funding more companies at lower dollar values is interesting to contemplate. It suggests funds are seeing clean-tech investing more like they see information-technology investing: put a little money in, expect a lot back.  This prospect may encourage more VCs to take part.”

Read the full article here.

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