M&A Pace Picks Up

It’s not exactly a flood, but it’s certainly more than a trickle.

That’s how one might characterize the environment for venture-backed mergers and acquisitions, based on deal numbers for August and the first half of September.

While most purchasers did not disclose prices paid, as usual, numbers that were released or leaked in press reports indicated a willingness to pay handsomely for sought-after assets. Deals with disclosed or widely reported valuations totaled more than $1.6 billion, including at least two that surpassed the $500 million mark.

Hardware companies fetched the biggest price tags.

That was certainly true for LitePoint, a venture-backed maker of testing gear for wireless devices, which sold to Teradyne (NYSE: TER), a provider of product testing equipment, for $510 million plus up to $70 million in potential milestone payments. Sunnyvale, Calif.-based LitePoint previously raised $50 million from Sequoia Capital, according to Thomson Reuters (publisher of VCJ).

Another large transaction with a hardware component is Hitachi’s announced purchase of BlueArc, a network storage provider, in a deal valued at $500 million to $600 million, according to published reports. BlueArc, which previously had been in registration to go public, raised $215 million in venture funding between 1998 and 2010 from such investors as Meritech Capital Partners (23.37% pre-IPO stake), Crosslink Capital (14.8%), Investor Growth Capital (10.95%) and Morgenthaler Ventures (9.45%).

I have to think that M&A activity is going to continue, in part because of the uncertainty of the IPO market and in part because there are some really good acquisition opportunities out there.

T. Hale BoggsPartnerManatt Phelps & Phillips

Those transactions came against a backdrop of accelerating activity in the tech M&A sphere. For the second quarter, the total value of global M&A in the tech space touched $52 billion, according to Ernst & Young. That’s nearly double the total for the first quarter and nearly 70% higher than the tech M&A volume during the same period a year ago.

Of course, acquisitions of public companies, such as Hewlett-Packard’s planned $10.2 billion purchase of infrastructure software developer Autonomy, announced in August, continue to account for the lion’s share of M&A spending. But there are reasons for bullishness among exit-hungry private company founders and investors, given the substantial cash reserves and debt financing available to large technology acquirers, along with the strong pipeline of mature private companies.

“There are still a lot of companies out there that are solid fundamentally, that are cash flow positive, that have good and loyal customers, that are well managed, and they’re still sitting in VC fund portfolios,” says T. Hale Boggs, a partner at Manatt Phelps & Phillips. “I have to think that M&A activity is going to continue, in part because of the uncertainty of the IPO market and in part because there are some really good acquisition opportunities out there.”

Providers of cloud computing and data center services seem to be among the more popular acquisition targets. Two deals announced in August and early September include Verizon’s purchase of CloudSwitch, developer of a software appliance for enterprises using cloud computing, and storage technology provider Fusion-io’s acquisition of IO Turbine, a provider of caching solutions.

The biggest rumored cloud acquisition, however, did not result in a deal announcement. Box.net, the fast-growing cloud-based content management and collaboration site, reportedly turned down a $500 million acquisition offer from Citrix Systems, according to VCJ’s online affiliate peHUB.com. Box reportedly countered with $1.5 billion, in an indication of just how much the company expects to expand.

Joanna Glasner can be reached at joanna.glasner@thomsonreuters and on Twitter at @jglasner.