Who Wants to Buy an IT Firm? Hardly Anyone
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The stock market got you down? Pity those poor venture capitalists trying to turn a buck on their earlier investments. |
The number of initial public offerings of venture-backed IT firms last quarter totaled zero. In fact, no venture-backed IPOs occurred in the United States in any sector in the second quarter, according to Dow Jones VentureSource.
Here's how Jessica Canning, Dow Jones VentureSource global research director, characterized the current environment:
The U.S. venture capital industry is in the midst of the second-longest IPO drought we've seen since we started tracking the industry in 1988. The last completed public offering for a VC-backed company was in March and we've seen 10 companies withdraw IPO registrations since then. Even though there are currently 22 venture-backed companies in IPO registration, it's clear they're in a holding pattern and waiting for market conditions to improve.
The last time there were no venture-backed IPOs within the IT sector was the second quarter of 2005. In the first quarter of this year, two VC-backed IT IPOs occurred.
Where VCs have found an exit is through mergers and acquisitions. The biggest M&A of the second quarter was Time Warner's $850 million buyout of the social network Bebo.com from its partners Balderton Capital and Benchmark Capital. Half of the top M&As last quarter involved IT firms.
Indeed, IT companies accounted for the bulk of capital raised via M&A in the second quarter with 41 transactions generating some $3.3 billion in liquidity, a 29 percent drop for the segment from the nearly $4.6 billion raised in 61 M&A transactions during the same quarter last year, according to Dow Jones VentureSource. By sector, the company said, software companies accounted for the majority of IT deal flow with 28 M&A transactions garnering nearly $1.2 billion.
Additional observation from Canning:
The broader pull-back in the economy is affecting corporate spending and is clearly impacting the M&A market. Corporations might be out looking for venture-backed companies to acquire but many are either doing so quietly or choosing to hold off on entering into negotiations. This, coupled with the closed IPO window, is putting downward pressure on acquisition prices.
You gotta feel for those VC investors, right?
