A down turn in stock prices and the virtual shut-down of the LBO business has resulted in a sharp reduction in tech sector M&A activity, according to a new report by The 451 Group.
In Q2, according to 451 analyst Brenon Daly, overall tech M&A fell 40% from a year earlier, to $148 billion from $241 billion. More stark was the drop in private equity deals, which fell to just $7 billion in the quarter, down from $85 billion one year earlier, a 92% decline. The number of tech LBOs worth more than $1 billion fell to 2 this quarter, from 8 a year earlier.
Daly notes in his report that some corporate buyers were adjusting to the new environment by taking additional capital from private equity shops to fund their own deals: he notes in the report that Nuance Communications (NUAN) sold $100 million of stock to Warburg Pincus to fund its $363 million purchase of eScription, while Blue Coat (BCSI) sold $80 million ot notes to Francisco Partners and Elliott Associates to help pay for its $268 million deal for Packeteer.
The report asserts that a recent flurry of unsolicited corporate takeover attempts - Microsoft’s (MSFT) bid for Yahoo (YHOO), EMC’s (EMC) offer for Iomega, Barrcuda’s offer for SourceFire (FIRE), Cadence Design’s (CDNS) bid for Mentor Graphics (MENT) and - he left this one out - Electronic Arts’ (ERTS) bid for Take-Two (TTWO) - is a trend that will likely continue “as long as the Nasdaq remains mired in the red, which effectively makes the deals cheaper and shareholders more ready to sell.”
Meanwhile, he notes, the M&A slowdown comes at a time when the market for venture-backed IPOs is effectively closed for business. There were zero venture-backed IPOs in Q2, the first time that has happened since 1978. (The last venture-back tech IPO completed was ArcSight (ARST) in February.)
