How fares the M&A market? Despite the recent recession, deals still got done. Indeed, downturns mean bargains for those who have husbanded their resources well, and all of EDA’s leading companies were active. Nevertheless, some questions remain.
At one level, there is the infamous tale about a meeting of business angels who were accused of trying to fix returns. Evidence, claims and counterclaims have appearedonline and it’s probably wisest for us to let you draw your own conclusions.
Then, there is the persistent problem with the IPO market, where potential market capitalizations are expected that are far in excess of what a typical startup can hope to achieve unless it has access to way, way, way above-average capital. And that has made the trade sale king.
Another new factor, though, is the cost of innovation. We all know that R&D in many crucial areas of the semiconductor industry is forcing partnerships between one-time competitors, and alliances at progressive stages of the supply chain with multiple independent contributors.
The implications for M&A here are worrying. Once upon a time, you might see a bigger and a smaller company ‘partner’ as a prelude to an acquisition—now partnerships are often just that and no more. As one Silicon Valley executive explained it to me, the cost of taking an innovative technology from the typical start-up level through to the full market and then maintaining it has risen in much the same way. The technological risk—or, more precisely, the threat of being superseded—has never been greater.
Obviously, we need to find a way around this, because it can only strangle still further the seed funding that a healthy tech economy requires. The IPO market has been largely lost, and if the perception spreads that the trade sale market is also under a cloud, investment dollars will inevitably flow elsewhere.
Of course, something new, something ‘sexy’ will probably turn up. Look at how little of the nanotechnology market we have actually explored, for example. The intersection between electronics and other disciplines is also generating exciting ideas even at the level of classical physics. But all this excitement cannot dispel the need for a widened debate about exit mechanisms.
Venture capital is the life blood of Silicon Valley—a truism that is frequently mistaken for a cliché. It needs to flow. Not perhaps the most warming thought on which to end 2010, but it is at least a sign that we can be optimistic about what 2011 will bring in terms of activity.
Meanwhile, may I wish you and yours the very best for this holiday season, and thanks, as ever, for reading.