In The News
Funding up in '06; IPOs Struggled; M&As Flourished
Mass High Tech
by Christopher Calnan
Friday, December 29, 2006 - Looking Back, Investment in technology companies continued to increase in 2006, while the market for initial public offerings remained flat. Experts expect a continued rise in investment levels next year.
In 2006, tech firms saw that the higher bar created by tighter corporate compliance forced them to remain at the private-equity trough longer, creating a growing crop of larger, more mature tech companies, which then became candidates for hedge fund and corporate private equity investment. The phenomenon also prompted angel investors to syndicate, forming groups to enable larger investments.
Meanwhile, on the IPO side, a growing number of smaller tech companies that previously would have filed public stock offerings on Nasdaq listed instead on the Alternative Investment Market in London, which operates with fewer compliance requirements.
The percentage of U.S. firms filing for IPOs on AIM has risen from 2 percent of all AIM filings in 2003 to 11 percent in 2006, according to Boston-based investment bank America's Growth Capital.
The chilly IPO climate in the United States also created a strong merger-and-acquistion environment. Notable New England M&As during the year included three by Hopkinton-based EMC Corp.: the $2.1 billion acquisition of Bedford-based RSA Security Inc., the acquisition of California-based software maker Kashya Inc. for $153 million, and the acquisition of Westwood-based Network Intelligence for $175 million.
Angel groups closed fewer deals in the first half of 2006, but at higher valuations, mirroring VC firms.
Speaking of venture capitalists, Westport, Conn.'s Oak Investment Partners closed on the largest-ever VC fund raised, $2.56 billion, during Q2.
On the IPO front, Cambridge-based Altus Pharmaceuticals Inc. raised $105 million in its IPO, while Acme Packet Inc., a Burlington telecommunications equipment maker, raised $109 million in its first offering.
News at Cambridge-based Metabolix Inc. was indicative of both a national and global trend. The company, which focuses on using renewable resources to make plastics, chemicals and fuels, raised $95.2 million with an IPO. Investment in such clean technology is on the rise, said Dow Jones VentureOne.
Looking Ahead
Investment levels are on track to reach the highest peak since 2001. Because the technology companies are growing more mature before reaching a sale, merger or IPO, they're requiring more capital.
The situation is widening what many experts have called "the capital gap," -- which then, in turn, spurs growth in the number of early-stage investors, including more angel investors and groups.
Industry observers are expecting a measure of carry-over activity during 2007 following the spike in New England IPOs during Q4 of this year.
America's Growth Capital CEO Benjamin Howe said AIM will evolve into a long-term competitor of the Nasdaq market. He projects the coming year to be a good one for investment activity in New England technology companies, especially during the first two quarters.
"All systems are go for M&A," said Howe. "We expect 2007 to be better than 2006."
Because of an IPO backlog, Howe is projecting next year's investment activity to reach levels not seen since in 2001. Howe expects a 10 percent increase in M&A activity and a 50 percent increase in IPO filings in 2007.
Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire, which tracks angel investment, said he's "cautiously optimistic" about the coming year's investing climate.
Sohl said he's expecting "reasonable growth" in investing and plans to monitor the level of post seed-stage investing, which needs to be 50 percent or more of the total, he said.
"If you don't seed stage, you won't have follow-on" investing.
