BDO Seidman's Bob Strasser on High Tech M&A in the Credit Crisis

As financial institutions melt down right and left, it seemed like the perfect time for a discussion about high tech M&A during a credit crisis. So I chatted with Bob Strasser, who heads the San Jose technology practice for BDO Seidman.

BNET: What's happening in high tech M&A as a result of the credit meltdown? Bob Strasser: I think the market is still percolating along. When you have highly tumultuous markets as we have today, human nature does make people more cautious. To the extent that the market is in turmoil, a lot of companies look at this as an opportunity to buy at an advantageous price.

BNET: But isn't the credit tightness going to make that tough? BS: What makes technology different [from other industries] is that a lot of the deals aren't driven by traditional finance sources. Technology companies don't rely on traditional sources of financing, like debt financing. That's not to say there's no impact. To the extent that companies are trying to do IPOs, they're SOL, so to speak. That market has kind of dried up.

BNET: Why are IPOs so important to tech companies? BS: An IPO does two things. It gives you cash, and now because you're a listed company, your stock is a form of liquidity that a target company would be interested in getting. A company is not interested in merging with another private company because there's not a lot of liquidity in the stock. More seasoned companies that are already public, to the extent that M&A is going to be financed by stock prices or the cash war chest that some of these companies have, I don't think they will be significantly impacted.

BNET: So why are the mergers and acquisitions important?

BS: In technology, one reason you do mergers and acquisitions is for synergy. Another of the dynamics of technology is you typically have relatively short windows from development to market. What companies realize is that they can't necessarily ride out the economic uncertainty of Wall Street because by the time they ride it out, someone else may have developed and commercialized the technology. If the IPO market is dried up, maybe the next best way to get to market would be through an M&A transaction.

BNET: Are you seeing more or less tech M&A at the moment? BS: I would say that it's softened. I think M&A activity will continue to sustain itself. The IPO market has been soft for about a year now. I think that what's going on in Wall Street is just prolonging that dynamic. The uncertainty in the capital markets I think will promote continued activity in the M&A market.

BNET: But there are two sides to a transaction. More small companies might be looking for an acquisition, but what if companies with the money aren't ready to buy? BS: I think the more seasoned companies are always looking for opportunities, bargains, other people that have already made an investment in the research and development.

BNET: What's happening in terms of investors and VCs? BS: What's very different today from say 8 or 9 years ago, the VC funds dried up during the 2000s. A lot of the reason was because a lot of the venture funds had their money tied up in these loser companies, so they were distracted. We don't have that dynamic this year, so even with the additional pull of investment toward green technology, I don't see the markets drying up for technology companies that have a good business model.