In their June Outlook 2011, Oxford, which manages private equity funds on behalf of institutional and private investors with a focus on growth capital and venture capital, finds that increasingly bulging corporate bank accounts will lead to more M&A activity.
‘As the cash balances of some large companies, especially in the technology area, continue to increase, so does the pressure to do something with the cash,’ the statement says.
‘Some are suggesting that the M&A cycle may be turning. Microsoft’s purchase of Skype for $8.3 billion perhaps illustrates this – but even after this acquisition Microsoft will still have about $45 billion of cash. Apple’s growing cash pile is now over $60 billion, having doubled in the last six months.
‘At the same time, growth is becoming harder to find in the more mature economies of the world and therefore is attracting a significant valuation premium. One needs to look no further than the doubling of LinkedIn’s share price on its opening day on the quoted market, valuing it at $8.6 billion – a staggering c23x revenues or c566x profit (last reported at $15 million).
‘The US is not alone in seeing extraordinary valuations – Renren, dubbed ‘China’s Facebook’, peaked at 100x sales after it recently joined the public quoted market.’
Oxford’s comments come after the British Venture Capital Association (BVCA) last month rejected claims that a second dot com bubble is developing, saying ‘2011 may be many things but 2001 Mark II it is not’.
Tim Hames, head of public affairs, communications and campaigns at the BVCA, told the Astia Investor Forum in London that there is no ‘evidence’ the tech boom and bust that occurred at the start of the last decade is being repeated.