Here is an excellent Bloomberg article by way of statesman.com.
“SAN FRANCISCO — Acquisitions of startups fell to the lowest level in a decade in the second quarter as the recession stopped companies from buying smaller competitors.
A total of 59 startups merged with other companies, a drop of 30 percent from a year earlier and dropping to the lowest level since 1999, the National Venture Capital Association said. Five U.S. startups have had initial public offerings so far this year. In 2007, before the financial crisis, there were 86.
Acquisitions and IPOs — the two ways for venture capitalists to cash in their investments — have almost come to a standstill, NVCA President Mark Heesen said. With the IPO market struggling, larger technology companies — confident that prices will fall — are waiting before proposing takeovers, he said.
“The buyers on the merger and acquisition side got smart real fast,” Heesen said. “They wait for companies to come crying to them to get bought.”
No venture-backed companies went public between September and March — the longest slump since the association began collecting data in 1971. Only 11 startups have had IPOs since the end of 2007, and there is little immediate prospect for improvement, said Paul Bard, an analyst at Renaissance Capital.
Only 10 startups have filed pre-IPO paperwork with U.S. regulators, and none has done so since January, said Emily Mendell, an NVCA vice president. That signals that deals such as the May IPOs of Austin-based SolarWinds Inc. and online restaurant-reservation service OpenTable Inc. failed to spur other young companies to act.
It also means the market won’t revive in the next few months, Bard said.
“Unless filing activity spikes in the next two to three weeks, we’re unlikely to see a more sustainable pickup in VC-backed IPOs before Labor Day,” Bard said. “The bar will remain high for most VC-backed deals to get done.”
Even if the 10 biggest venture capitalists had 25 companies ready to go public by early next year, that would still leave IPOs at about a third of their levels from 2004 to 2007, he said.
That means startups lack bargaining power in merger talks, a situation that is keeping offers low and stalling many negotiations that do occur, Heesen said.
Only 13 of the 59 companies that sold out reported how much they were paid, the association said. Prices were higher than in the first quarter, a possible sign of improving conditions later this year, it said.
Cisco Systems Inc.’s $590 million deal to buy Pure Digital Technologies Inc., maker of the Flip Video camera, helped drive up the average merger price to $197.7 million.
Five companies commanded less than venture capitalists had invested, the venture capital association said. Purchases of medical-instrument makers CoreValve Inc. and Chestnut Medical Technologies Inc. were the only ones in which early backers received 10 times their outlay, the traditional standard for a venture-capitalist home run, Mendell said.”
Read the full article here.
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