There are a few positive signs that mergers and acquisitions are on the upswing. Intuit bought Mint for $170 million recently. Facebook bought FriendFeed for $50 million and Yahoo bought Xoopit for $20 million.
But while buyers may be open to stock transactions, it'll be another six months before the M&A market rebounds to more healthy levels of activity, according to Charles Moldow, General Partner, Foundation Capital. And, the prices on acquisitions will depend largely on whether public market investors have any appetite for IPOs, Charles said.
"The biggest challenge is that the buyers know that there aren’t a lot of alternatives," said Charles. Until the IPO market comes back, the lack of alternatives will keep a lid on activity and acquisition prices, he explained."If the IPO window opens, it gives companies alternatives to selling to M&A transaction. So, when you have alternatives, prices for M&A transactions go up."
"The challenge isn't getting the exit," he said. "It's getting the right price."
Even though there's some interest from buyers for acquisitions, and certainly the prices they're paying today would never have been paid six months ago, they still have their claws in, he suggested.
Charles should know about what the buyers are thinking, as he's been an investor in four companies that have been sold in the past couple years.
Charles has taken the lead on roughly 10 investments since joining Foundation in 2005. Four of them - Xoopit, Powerset, Weblistic and AdWhirl - were sold in the past couple years. Powerset was sold to Microsoft for roughly $100 million, Xoopit was sold to Yahoo for $20 million, Weblistic sold to Spot Runner for about $20 million as well, and AdWhirl was sold to AdMob for an undisclosed amount.
Clearly, he's done fairly well despite the tough economic environment that's keeping a lid on transactions.
Watch the interview for more insight from Charles.
(See interview No. 1: How do you get funded by Foundation Capital? And be sure to stay tuned for segment No. 3 of our interview series with Charles.)