Thursday, September 18, 2008

MHT panelists says tight market may be good for growing better companies

By Mass High Tech Staff

At this morning’s packed Finance Forum, sponsored by Mass High Tech, local financial industry insiders declared the initial public offering market on the downslide, but expressed optimism for the mergers and acquisition market, which continues to be active as larger companies seek to grow.

While the M&A market is not at the level it has been in the past, panel moderator Gabor Garai, a partner at Foley & Lardner LLP, said in these tough financial times, “flat is up.”

The panel, which included TechTarget CFO Eric Sockol, America’s Growth Capital founder and CEO Benjamin Howe, Highland Capital General Partner Peter Bell and Navic Networks CFO John Pruellage, agreed that while the worldwide financial markets, in general, are in turmoil, some areas, such as venture capital, have been relatively unaffected, because they are not leveraged.

With a barren IPO market and an eye to acquisition, Bell told the audience assembled at the Seaport Hotel in Boston that venture capitalists are putting more emphasis on developing the business model of early-stage companies, and working on how those portfolio companies can get to cash-flow positive more quickly.

Pruellage agreed, adding that in today’s market, it is no longer a guarantee of success to have a good idea, but companies have to build viability on the business side to attract attention from potential acquirers. Pruellage’s employer, Navic Networks in Waltham, was acquired by Microsoft Corp. earlier this year for an undisclosed amount.

When confronted with the question of more or less regulation from the federal government during the question and answer period of the event, the majority of panelists shared the sentiment that besides any increases in capital gains tax, both parties will most likely introduce stricter regulations.

While acquisition appears to be the exit of choice for most venture-backed companies today, the panelists agreed that, while there are reasons to remain optimistic about the market, returns may not be in the 10 times revenue range some entrepreneurs (and investors) have come to expect.