Are we sitting on Dotbomb 2.0?

29 Oct 2007

Merger and acquisition (M&A) activities, venture capital funding and initial public offerings (IPOs) appear to be back in vogue as the value of venture capital deals in the US are at their highest since the disastrous dotcom slump seven years ago.

When the penny finally dropped in the US in 2000 that many business plans consisted of hot air and that internet infrastructure wasn’t then capable of delivering on the promises, tech stocks went into freefall and the sector was plunged into a downturn that was to last several years.

However, according to the latest US Liquidity Report by Dow Jones Venture One, some 90 venture-backed companies raised more than US$10.5bn in M&A transactions in the third quarter, up 31pc on last year and the highest quarterly amount since 2000.

“So far this year, US$28.4bn has been raised via M&A transactions and another US$4.7bn was raised in public offerings,” says Jessica Canning, director of Global Research for Dow Jones VentureOne.

“This virtually guarantees that 2007 will be the largest year for venture-backed liquidity — both in terms of IPOs and M&As — in the US since the dotcom boom,” she adds. “After several years of uncertainty, the ‘venture capital rebound’ is officially over.”

The report showed that IT companies accounted for the bulk of the capital raised via M&A with 64 transactions accounting for at least US$7.4bn, a 64pc increase for the segment over the third quarter of 2006.

As usual, software firms were popular, with 37 of these companies garnering almost US$5.4bn from M&As, more than double the amount raised by the segment during the same time last year.

The data found that, of the 11 IPOs completed in the third quarter, seven were for IT companies, which raised a collective US$488m, a 9pc dip from the same period last year.

The largest M&A — the US$812m acquisition of interactive advertising firm Right Media by Yahoo! — was more than all the capital raised via IPO during the quarter. The largest IPO of the quarter belonged to medical software company Athenahealth, which raised US$90m in its Nasdaq debut.

Just how long the present euphoria will last as storm clouds gather over the global economy is anyone’s guess, as some social networking sites attract massive valuations and act as an alleged harbinger for Dotbomb 2.0.

Last week it emerged that Microsoft paid a massive US$240m for a 1.6pc sliver of popular social networking site Facebook. This now puts the value of Facebook at a whopping US$15bn. Not bad for such a young site which has been up and running for only three and half years now and has been a closed university networking tool until a year ago when it was opened up to the general public.

Google galore
If there’s one stock that doesn’t show sign of abating it’s Google’s, which, in recent weeks, rose above the US$600 mark for the first time.

Since going public in 2004, Google’s stock has risen sharply from its original price of US$85 a share.

In the past month Google, steered by veteran tech CEO Eric Schmidt, has seen its shares increase 17pc while they have risen 32pc since the beginning of the year.

The firm has tapped into revenue from advertisers looking beyond traditional media like TV and print and it has improved its reach compared with Yahoo! and Microsoft.

Larry Page and Sergey Brin, who founded the company, have seen their wealth rise to US$20bn each.

Reverse side of card
Alphyra, the Irish payment technology company responsible for mobile top-up infrastructure and ATM services in recent weeks merged with UK firm Cardpoint in what is understood to be an €800m deal.

The merged companies will create a new entity known as Payzone. However, the conclusion of the merger will be subject to approval by Cardpoint’s shareholders.

It is understood that following the merger, Payzone will be approximately 59pc owned by Alphyra shareholders (being principally Alphyra’s management and Balderton Capital) and 40.9pc by Cardpoint shareholders.

While the companies did not disclose the value of the deal, reports suggest it to be worth up to €800m.

Alphyra, headed by John Nagle, operates electronic payment and mobile credit top-up machines, while Cardpoint operates more than 6,000 cash machines throughout the UK and Germany.

Meaney’s raised voice
An Irishman’s company responsible for one of the highest-capacity fibre networks in Europe has completed the issue of a convertible bond that will raise up to €32m to accelerate investment in long-haul and last-mile infrastructure.

Noel Meaney’s Global Voice, which trades as euNetworks in Europe and owns high-capacity fibre networks and data centres across the continent, amassed revenues of €10.4m for the first half of 2007, resulting in profits of €1.4m.

The Singapore Stock Exchange-listed company which Meaney started after leading a management buyout of data centre firm Metromedia in 2002, attracted 34 new customers and 113 separate new lease agreements in the six months.

Global Voice issued the convertible bond in order to accelerate investment rollout in response to increased customer demand.

Nokia maps future
At a purchase price of €5.7bn, Nokia has acquired mapping and navigational software makers Navteq, opening up a new direction in its services strategy.

Explaining why it chose Navteq, Nokia said in a statement: “The navigation area is a fast-growing business and with location-based services expanding rapidly into mobile communications devices, the industry is poised for even further growth.”

Navteq is the world’s leading supplier of digital mapping information for mobile devices, sat-nav systems and internet-based mapping applications.

The company was founded in 1983 and pulled in revenues of US$582m in the past year alone.

By John Kennedy