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With interest in IPO’s at rock bottom, venture-backed companies turned to mergers and acquisitions as exit strategies in 2008, but — no surprise — even M&A’s fell off as the year progressed and the economic picture darkened.
New England venture capital firms closed 106 merger and acquisition deals and five initial public offerings among their U.S. portfolio companies in 2008, according to a data analysis provided by Dow Jones VentureSource.
The top New England M&A dealmaker was Greenwich, Conn.-based Oak Investment Partners LP, with 10 mergers and acquisitions on the books. Greylock Partners of Waltham and Bessemer Venture Partners, with offices in Wellesley, followed closely with nine deals and eight deals, respectively. None of the top-ranked M&A dealmakers scored any IPO’s for portfolio companies in 2008, according to the VentureSource data.
New England-backed companies accounted for roughly one-third of the M&A deals nationwide and five of 2008’s seven IPO’s. Among the merged or acquired companies, about one third were located in New England, and the list of New England-backed IPO’s did not include any regional tech firms. VentureSource recorded 325 M&A deals and seven IPO’s nationwide in 2008.
The deal data do not provide a clear picture of specific venture firms’ 2008 liquidity, as more than half the deals did not disclose financial terms. Ten deals is above average for a single firm, National Venture Capital Association president Mark Heesen said, but the devil is in the details. “A firm could have 10 exits but they’re all fire sales,” he said.
According to VentureSource, seven of the 106 New England-backed M&A exits were asset acquisitions in which a company’s assets are portioned out to buyers. Two of those belonged to Oak-backed companies: Utah-based Linux supercomputing company Linux Networx and Los Angeles e-commerce retailer eStyle.
Waltham-based Atlas Venture tied for the number-nine spot with four firms, each with four M&A deals. Two of Atlas’ deals were New England-based companies — an asset-only acquisition and a stock merger.
In March, Methode Electronics Inc. acquired the assets of Burlington-based power connector maker Tribotek for undisclosed terms. In January, Ellacoya Networks, a Merrimack, N.H.-based maker of connectivity equipment sold to Lexington-based Arbor Networks Inc. for undisclosed terms.
That deal was not an exit, but a strategic merger between two startups with complementary technology, explained Atlas partner Barry Fidelman. “It’s a substantially better property — either as an IPO or as an acquisition — than they were as two individual companies,” he said.
The only New England company on Oak’s list of deals for 2008 was Woburn-based semiconductor manufacturer Kenet Inc., which sold in October to California chip maker Intersil Corp. According to Oak partner and former Kenet boardmember Ifty Ahmed, the deal was “a relatively modest success.”
Kenet was sold for undisclosed cash and an earn-out component that will pay investors if the company reaches certain milestones, Ahmed said. “Especially in the semiconductor area it’s been a very challenging year,” he said. “To get a transaction done in those conditions was extremely satisfying.”
Mergers and acquisitions slowed dramatically across the board for firms backed by New England venture capital during the latter half of 2008. Only 41 of the 106 mergers and acquisitions obtained by New England VC’s occurred between July and December. Just 16 of those went down in the fourth quarter.
Looking at the new year, Ahmed said Oak’s New England portfolio contains a number of exit-ready companies — including the Norwalk, Conn.-based travel services company Kayak Software Corp. — but any deal for a strong company is unlikely until the M&A market improves.
Heesen agreed, with one exception. He said he believes good M&A deals are more likely in life sciences, where large pharma companies compete to snap up critical intellectual property.
“Big pharma needs to buy emerging biotech companies because so many of them have drugs that are coming off patent and they don’t do internal R&D,” he said. “The way they do R&D is by buying venture-backed biotech companies. They want to make sure they buy the ones that are critical to their future.”
Dell’s $1.4B EqualLogic buy was big money
The 10 biggest mergers and acquisitions among companies backed by N.E. venture capital investors
EqualLogic Inc.
Nashua, NH
Close Date: 01/29/08
Acquisition Value: $1.4B
Acquiring Company: Dell
New England Investors: Charles River Ventures, Sigma Partners, TD Capital Ventures
Optasite Inc.
Westborough
Close Date: 09/16/08
Acquisition Value: $430M
Acquiring Company: SBA Communications Corp.
New England Investors: Berkshire Capital Investors, Highland Capital Partners, Kestrel Venture Management, Key Venture Partners, Long River Capital Management, Point Judith Capital Partners, TSG Equity Partners, Village Ventures
Insitu Group
Bingen, WA
Close Date: 09/09/08
Acquisition Value: $400M
Acquiring Company: Boeing
New England Investors: Battery Ventures
LeftHand Networks
Boulder, CO
Close Date: 10/14/08
Acquisition Value: $360M
Acquiring Company: Hewlett-Packard Co.
New England Investors: Ironside Capital Group
Adify
San Bruno, CA
Close Date: 05/15/08
Acquisition Value: $300M
Acquiring Company: Cox Enterprises
New England Investors: Venrock Associates
World Wide Packets
Spokane Valley, WA
Close Date: 03/04/08
Acquisition Value: $284.5M
Acquiring Company: CIENA
New England Investors: Argo Global Capital, Masthead Venture Partners
P.A. Semi
Santa Clara, CA
Close Date: 04/30/08
Acquisition Value: $278M
Acquiring Company: Apple Computer Inc.
New England Investors: Bessemer Venture Partners, Highland Capital Partners, Venrock Associates
Gracenote
Emeryville, CA
Close Date: 06/03/08
Acquisition Value: $260M
Acquiring Company: Sony
New England Investors: Bessemer Venture Partners, Windspeed Ventures
IAG Research
New York, NY
Close Date: 05/16/08
Acquisition Value: $225M
Acquiring Company: Nielsen Co.
New England Investors: Bessemer Venture Partners
PostPath
Mountain View, CA
Close Date: 09/18/08
Acquisition Value: $215M
Acquiring Company: Cisco Systems Inc.
New England Investors: Matrix Partners
Source: Dow Jones VentureSource
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