Signs of a market recovery

Matt Walker/Ovum
17 May 2010

Telecom IPOs and M&A deals picked up in the second half of 2009 after years of dormancy

Interest in telecom public stock offerings and M&A deals began to improve in the second half of 2009. The renewed public offering and M&A activities, brought on by a decline in market volatility, have made it easier for companies to cut costs or raise operating capital. But venture capital investment in telecoms sank in the fourth quarter, in a development that could hamper small-scale innovation.

Venture capital-backed start-ups have been responsible for many important innovations in the telecom industry - both directly through their own creations and indirectly by driving larger vendors to work harder. As a result, the recent drop in VC support for telecom start-ups is disconcerting.

The telecom market attracted around $1.6 billion in venture capital in 2009, down 33% from the year before. And just 45 VC deals were made in Q4, well below the average. Around $370 million was raised this way during the quarter, compared to $571 million in 4Q08.

Not all of this decline can be attributed to the unstable investment climate during the financial crisis - the decline in VC in the overall technology sector was significantly less severe.

The VC flow split among regions and segments (vendors versus service providers) remained steady during the downturn: roughly 80% of all telecom venture financing in 2009 went to vendors in North America.

And only two of last year's ten largest VC deals were for service providers - UQ and Tarpon.


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