I was working on a comprehensive column on M&A, but ran out of time (I’m sure you’re shocked, just shocked). So instead here are the salient points, followed by some unrelated notes:
*** Many VCs have a decidedly mixed reaction to this outpouring of M&A interest in their companies. And I’m not talking about their obvious preference for IPOs. Instead, there are some concerns that the advent of “reverse auctions” for VC-backed companies could depress M&A valuations in 2006. Charley Lax of GrandBanks Capital introduced me to this concept yesterday. This thesis is that VCs no longer have many public liquidity options, so they must instead tap the M&A market. At the same time, however, strategic buyers are no longer waiting for potential targets to come to them. Instead, they go into the M&A market looking for a specific type of technology that is offered by multiple VC-backed players (how many truly unique offerings do you have in your portfolio? Thought not). They then leverage’ the seller’s market to drive down prices. This gets alleviated if there are enough strategic buyers looking for the same thing at the same time, but the VC tendency to copycat has tipped the scales in the strategics’ favor.
