Tech Dominated by M&A–not IPOs

A few days ago, I offered readers my forecast for tech IPOs in 2008. But in many ways, the real action–and most realistic exit strategy-for the lion’s share of startups is to be swallowed by some bigger fish. This point was driven home to me when I saw a recent end-of-year M&A report from America’s Growth Capital. Last year, there were 307 tech mergers or acquisitions, down 19% from 381 in 2006. That compared to 60 tech IPOs–a ratio of about 5 to 1.

The disparity in the importance of the IPO market and the M&A market really becomes clear, though, when you look at the value of the transactions. Last year, as of 12/19, there was $203 billion worth of tech M&A deals, compared to just $7 billion in capital raised through IPOs. That’s a ratio of 31 to 1!!!

Merger Chart

Although the number of tech mergers declined, the value of those transactions soared 46%. The main reason? The explosion of huge private equity buy-outs. The number of tech deals exceeding $1 billion soared 38% last year. And four out of the top 10 largest deals were handled by private equity shops: Kohlberg Kravis Roberts acquired First Data, Silver Lake Partners bought Avaya, Madison Dearborn Partners scooped up CDW and The Blackstone Group took over Alliance Data Systems.

So what does this portend for 2008? With the private equity biz in a deep freeze, I would expect that we’ll see a significant decline in both the number of deals and the total value of transactions. That leaves good ol’ corporations as the main predators.

The prevailing business model, er, I mean, fantasy in Silicon Valley today is to be acquired by Google. But Google is not the most acquisitive tech company. Here’s the list of top 10 acquirers in 2007:

Microsoft (17)

Cisco (15)

Google (14)

Oracle (12)

EMC (12)

Hewlett Packard (11)

IBM (11)

Interactive Corps (9)

Yahoo! (6)

Nuance (4)

eBay (4)

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3 Responses to “Tech Dominated by M&A–not IPOs”

  1. Mike Says:

    AOL was over 4 in 2007 (Quigo, Tacoda, Yedda, AdTech to name a few)

  2. spencerante Says:

    Good point Mike. The data from America’s Growth Capital did not include AOL. Perhaps that his because AOL is not an independent company, but is one big part of Time Warner, Inc. And Time Warner is considered a media company, more than a tech company.

    Other media companies to watch include Disney, News Corp. and CBS–all of which are on the acquisition hunt.

    Can you think of any others?

  3. Rezepte zum Abnehmen Says:

    Probably deep down everyone would like to be a bit ‚Berlusconi‘, especially considering he’s not the youngest. Most people would not admit to it, though.

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