M&A: a logical step for European VCs?

It's been a generation since Wall Street started buying up European (mainly UK) banks by the bucketload. Since then banking consolidation has led the way in European cross-border M&A. Of course, consolidation in financial services has not been confined to banking: insurers, asset managers, property companies and even hedge funds have joined forces to create more efficient organisations and, of course, to bolster the egos and banks accounts of executives. It therefore almost defies belief that M&A among venture capital firms is virtually non-existent.

Until this week, that is, when Draper Fisher Jurvetson, a well-known Silicon Valley outfit, bought a minority stake in Esprit Capital Partners, a UK technology investment firm. This is a significant departure from US VC firms setting up offices overseas, principally in Europe and Asia. The renaming of Esprit as DFJ Esprit possibly gives a clue as to the balance of power in the relationship – in the words of the new company, "Esprit will become the newest addition to the DFJ Network of venture partnerships which stretches around the globe".

So does this presage a wave of consolidation in the European VC sector, driven from the US? Certainly it makes sense to pool the intellectual capital of regional firms in an era of increasing globalisation. And acquiring VC firms may well be less risky than creating a regional office from scratch and attempting to manage the extended family risks from a remote location.

But bringing together businesses that are based purely on individual and team talent rather than, say, fixed assets and technology is notoriously difficult. There are sometimes years of internal strife following mergers between banks and asset managers, where culture clashes can alienate both sets of staff. In venture capital, there is also the thorny issue of the differences in tax treatment of investments and executive remuneration in the jurisdictions involved.

In addition, talented investors do not always relish becoming part of a larger organisation and, anecdotally, their performance can suffer within the confines of a more structured working environment.

However, logic has not always been the defining characteristic of M&A and it is more than likely that where DFJ has led, others will follow. Where both parties really want to do a deal and where most of the key staff buy into it, there are bound to be a number of success stories.

The Week's Deals

Panda Security, the Spain-based internet security company, has raised €10m from HarbourVest Partners, Atlantic Bridge Ventures, Investindustrial and Gala Capital. Panda is a developer and provider of integrated security products to combat viruses, hackers, trojans, spyware, phishing, spam and other internet threats. The funding is intended to drive major international expansion, consolidate the position of Panda in the IT security market, and accelerate the development of new technologies.

Vringo, the Israel-based mobile video sharing company, has raised $12m (€8.7m) in a series B funding round led by Warburg Pincus. Vringo is launching a video sharing community that allows users to share video ringtones (or Vringos) with friends each time they contact them. The investment is intended to fund Vringo's global expansion as it introduces new personalisation and content services to markets in the United States, Europe and Asia.

Nexeon, the UK-based developer of high energy density batteries, has raised £4.25m (€6.3m) from Imperial Innovations, NanoVentures, PUK Investments and Tudor Investment Corporation. Nexeon will use the funding to develop its second generation lithium-ion battery technology. Potential applications include rechargeable batteries in mobile devices, and emerging sectors such as hybrid electric vehicles.

Acrobot, the UK-based developer of precision surgical systems for orthopaedic surgery, has raised up to £2.6m (€3.9m) from London Technology Fund, PUK Investments and Imperial Innovations. Acrobot has developed and clinically proven a range of products in three key areas related to orthopaedic surgery: computer-assisted 3D planning, surgical navigation and surgeon-controlled robotic surgery. The company is now concentrating on full commercialisation.

The Week's Exits

Aggregator, the UK-based provider of video-on-demand services, has sold its entire publishing platform to Rawflow, the UK-based provider of peer-to-peer streaming technologies. Aggregator has been in administration since late April. The acquisition is designed to provide Rawflow with an end-to-end video-on-demand platform that includes setting up portals, payment gateways and handling billing.

Exomi, the Finland based provider of wireless messaging and mobile data infrastructure products, has been acquired by Nasdaq-listed RealNetworks for $11m (€8m) in cash. An additional $5m (€3.6m) will be paid if financial performance targets are met. RealNetworks, a creator of digital media services and software, has also recently acquired WiderThan and Sony NetServices, as part of a plan to consolidate and strengthen its market position.

Elsewhere, IR Microsystems, the Switzerland-based developer of gas sensors, has been acquired by Switzerland-based Leister Process Technologies for an undisclosed amount, and InterCure, the Israel-based manufacturer of a hypertension treatment device, has raised $16m (€11.6m) through a flotation on the Tel Aviv Stock Exchange.

People Moves

Aternity, the US and Israel-based developer of business intelligence products, has appointed Trevor Matz as president and chief executive. Mr Matz will lead Aternity’s strategic and operational initiatives with a focus on aggressive market growth throughout the US, EMEA and Pacific Rim.

Winwind, the Finland-based developer of wind turbine technology, has appointed Jari Varjotie as chief operating officer and member of the executive committee, and Marko Kvist as sourcing director. The appointments follow the recent addition of Lassi Noponen as executive chairman.

Most Accessed Companies

Xtract, the Finland-based social network analytics and mobile marketing company, has attracted a lot of attention this week. Xtract provides products that automatically predict and analyse user behavior on mobile devices or within communities or social networks. The company received €2m from Eqvitec Partners in March this year in order to grow its user base. Current customers include a variety of companies from sectors such as mobile, finance, retail, media, and internet, including mobile operators, service providers, and handset manufacturer.

Lectus Therapeutics, the UK-based drug discovery and development company, has also received a lot of attention recently.  Lectus works in the field of ion channels, which are therapeutic targets in a variety of disease states including asthma, epilepsy and urinary incontinence. In December last year, it announced the first proof-of-concept data for one of its lead in-house programmes in preclinical models of inflammatory and neuropathic pain. The company is backed by investors including Astellas Venture Capital, Quester Capital Management, Sofinnova Partners and Takeda Research Investment.

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