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Is Startup M&A on the Rebound?

Venture-backed startups in the U.S., particularly in networking and telecom, may be growing in appeal to would-be acquirers.

A report issued jointly by the National Venture Capital Association (NVCA) and Thomson Venture Economics cites a "modest increase" last quarter in the level of merger and acquisition activity among VC-funded U.S. startups, with big deals occurring in networking and telecom.

These findings appear to confirm conclusions reached in a recent Light Reading Insider, "Startup Shakeout," which concluded that startup valuations had bottomed and the venture market was on the cusp of a rebound (see Startups Look for the Bottom; you may buy the report here).

The total number of M&A deals among venture-backed companies stateside rose about 28 percent, and the total value of such deals among venture-backed companies rose 27 percent between the first and second quarters of 2003, according to the NVCA/Thomson report.

While the total value of deals for the first half of 2003 ($3.3 billion) is still lower than the level for the first half of 2002 ($3.6 billion), the average size of deals with disclosed values appears to be up: The average value per disclosed deal last year was $51.98 million; for the first half of 2003, it was $68.71 million.

Deal valuations need to stay high for a trend to emerge, says NVCA president Mark G. Heesen. Even if increases in deal numbers go up, he maintains, it's the average price paid for each transaction that will show the market has really gained in value.

In a prepared statement, the firms say the small uptick in M&A for startups was the first after two declining quarters, and they attribute it to "a resurgence in activity in the Telecommunications sector, and healthy increases in the Biotechnology and Networking/Equipment sectors."

Overall, the percentage of startup M&A deals in telecom and networking is holding fairly steady: These kinds of deals were about 15 percent of all startup M&A for the first half of this year; last year, they represented about 16 percent.

According to Thomson Venture Economics spokesman Joshua Radler, Networking/Equipment refers to data communications startups, whereas Telecommunications refers to service providers and wireless startups. Examples of networking deals cited in the report are the buy of WaveSmith by Ciena Corp. (Nasdaq: CIEN) for about $178 million (see Ciena Completes WaveSmith Buy) and the purchase of Vivace by Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) for $135 million (see Tellabs Closes Vivace Acquisition), both in June 2003. Telecom deals cited by the firms include the purchase of Winphoria by Motorola Inc. (NYSE: MOT) in April 2003 for about $180 million (see Motorola Acquires Winphoria).

— Mary Jander, Senior Editor, Light Reading

rustybridge 12/4/2012 | 11:32:39 PM
re: Is Startup M&A on the Rebound?
Like Corona most startups will simply fade away. They, on account having no prospects for profit, have zero - if not negative - net worth. The better ones will be acquired for close to zero by established players looking to strenghten their portfolio. As were West Bay and Multilink. Weaker ones will merge with other startups - like allegro and luxn, tellium and zhone - postponing the inevitable just a little bit. And most, I repeat, will be gently euthanized. And then, in a few years we will have a richer, strudier crop grounded in non-bubble economics.

The days of the 100+ mil buyouts are over. Wake up and smell reality.
networking_legend 12/4/2012 | 11:32:37 PM
re: Is Startup M&A on the Rebound? They, on account having no prospects for profit, have zero - if not negative - net worth. The better ones will be acquired for close to zero by established players looking to strenghten their portfolio. As were West Bay and Multilink. Weaker ones will merge with other startups - like allegro and luxn, tellium and zhone - postponing the inevitable just a little bit

I am still amazed by how many startups seem to be clinging to this faint glimmer hope that some miracle might happen (i.e. getting bought out by one of the big guys). Some of these startups have been in pseudo-operative (better known as "hibernation") mode for more than a year now.

I wonder what the VCs are thinking here. Why dont they just call it a day and take whatever cash is left in these startups home with them. Why do they insist on waiting until the company is down to its last penny. Is it really worth it?

I just find it very hard to believe that any real product development can occur when a startup has cut 75%+ of its staff.




NightTrain 12/4/2012 | 11:32:32 PM
re: Is Startup M&A on the Rebound? So don't spend time talking about the 99% that are worth nothing. Talk about the 1% that are worth something and whether or not they can contribute to our industry.

It's easy and lazy to take the negative slant.

So let's list some start-ups in revenue...


optestlab 12/4/2012 | 11:32:31 PM
re: Is Startup M&A on the Rebound? When things were going well in the industry, most everyone said it woudl continue. Things are bad now, and now everyone is thinking that it too will continue unabated. Both views are wrong. High tech is cyclical. It will come back (actually, is already starting now). Our company has seen some really amazing technology in many startups. Technology that will really make a difference in both performance and cost. Surely there were a lot of startups that should never have been funded, but there are a lot of really good ones that just need to hang on until the curve comes back up.

Keep the faith. The semiconductor guys have been living through these cycles for decades.
priam 12/4/2012 | 11:32:30 PM
re: Is Startup M&A on the Rebound? 'dja hear that the Russians are going to launch a bunch of cows into near-earth orbit? Yep, it'll be the first herd shot 'round the world!
KillerApp 12/4/2012 | 11:32:24 PM
re: Is Startup M&A on the Rebound?
Rusty my man that is way too dour, too too dour.

There is a way. If a startup has sharp vision, well-positioned product, flawless execution, commonsensical VCs, and a surfeit of like adjectives too smoothen out the inevitable bumps then they can survive, thrive maybe even break even !! What u say ?

Don't be so down my friend. Put on those rose colored binoculars and check out them commie cows jumping over the moon. Pretty cool eh ?



================================================
Like Corona most startups will simply fade away. They, on account having no prospects for profit, have zero - if not negative - net worth. The better ones will be acquired for close to zero by established players looking to strenghten their portfolio. As were West Bay and Multilink. Weaker ones will merge with other startups - like allegro and luxn, tellium and zhone - postponing the inevitable just a little bit. And most, I repeat, will be gently euthanized. And then, in a few years we will have a richer, strudier crop grounded in non-bubble economics.

The days of the 100+ mil buyouts are over. Wake up and smell reality.
jamesbond 12/4/2012 | 11:32:23 PM
re: Is Startup M&A on the Rebound? The days of the 100+ mil buyouts are over. Wake up and smell reality.

-----------------------------

I wouldn't bet my dollar on this. Wallstreet has
very short memory and acquisitions are mainly to satisfy wallstreet types.
TheVoice 12/4/2012 | 11:32:22 PM
re: Is Startup M&A on the Rebound? Absolutely
http://www.nextcom.co.jp/
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