The financial crisis of 2008 signaled the end of the era of the private equity backed/financial buyers as limited access to credit reduced their ability to finance acquisitions.
With the financial buyers sidelined and valuations tempering, the decline in the stock market ensured a stall in technology M&A as corporate buyers focused internally. Strategic buyers look for sympathetic decreases in M&A valuations and acquisitions candidates capable of holding off an exit hold on for higher valuations.
Following their restructurings and the stabilization of the economy, strategic buyers are likely to emerge first as drivers of a new wave of technology M&A as they look to capitalize on the lower valuations for strategic targets. The strategic buyers with their cash balances will be motivated by traditional drivers of M&A such as access to products and markets, etc.
Although the stock market has improved in the last quarter and technology is leading the way, we saw only a handful of technology IPOs (four by most accounts) in 2008 and five in 2009 year to date. While promising, it is not likely that public offerings will provide a sufficient exit strategy for most technology businesses as a result of the compliance costs and other challenges in the capital markets. Venture investors with aging portfolio company investments may find a potential M&A exit more attractive.