Merger and acquisition activities, venture capital funding and IPOs (initial public offerings) appear to be back in vogue in the US as the value of venture capital deals in the States are at their highest since the disastrous dotcom era 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, technology stocks went into freefall and the sector was plunged into a downturn that was to last several years.
However, according to the latest quarter, US Liquidity Report by Dow Jones Venture One, some 90 venture-backed companies raised more than US$10.5 billion in merger and acquisition 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 raised in public offerings,” said 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 U.S. since the dotcom boom,” she added. “Yes, after several years of uncertainty, the ‘venture capital rebound’ is officially over.”
The report showed that information technology 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 companies were an acquirer favourite, as 37 of these companies garnered almost $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 $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 — such as the rumoured US$10.5bn Microsoft is rumoured to be interested in paying for Facebook — and act as an alleged harbinger for dotbomb 2.0.
By John Kennedy