Weak reception for Rackspace float; should we be worried?
Wall Street saw its first market listing by an information technology company in six months. RackSpace, a web-hosting and services company, raised $187.5m. This was reported in the FT as a weak reception, indicating that public market investors are still reluctant to support tech start-ups and even more established companies such as RackSpace.
This accords with similar difficulties faced by tech companies in accessing capital markets on the London Stock Exchange and AIM. According to Ernst & Young, there were just 14 technology floats in 2007, compared with 24 the previous year.
You might ask – what concern is this for tech companies, who tend to rely most heavily on venture capital? The big concern is that, if exit by IPO is perceived to be permanently closed, VCs may be more reluctant to invest in tech companies because it will be more difficult to realise their investment; lower values on the stock markets may mean lower valuations for a trade sale exit.
Having said this, are IPOs really that important as an exit route or source of second stage funding for tech companies? There are plenty of specialist funds – some of which may be listed themselves – willing to take on such later-stage investments. Also, once a tech company has grown sufficiently on VC funding, it may be mature enough to attract interest from trade buyers. Third, trade sales valuations do not necessarily correlate with stock market valuations which can be affected by the pricing method. This may have been the case with RackSpace, which was priced by an unusual Dutch auction method.
Sadly, however, this is little comfort to tech companies when VC investors struggling to raise funds in the first place due to restricted credit conditions generally and when VC giants such as 3i are quitting the VC market altogether. According to Library House, VC investment in Europe’s fledgling technology companies last quarter fell to its lowest since the dotcom crash. But it is not all doom and gloom as the UK fared much better than the rest of Europe, where VC investment declined by just 5 per cent year-on-year.
Posted by ebizlaw team on the 15-08-2008
ISPs to begin letter writing campaign to file-sharers
The BBC is reporting that some of the UK's largest ISPs, BT, Virgin, Orange, Tiscali, BSkyB and Carphone Warehouse, have signed up to a government backed scheme to send letters to customers who are caught illegally sharing music. This seems to be a watered-down version of the 'three-strikes' rule sought by the BPI, whereby persistent file-sharers would have their internet connection cut off. It will be interesting to see whether the letters have any impact, given that they are being described as 'informative' rather than threatening.
Interestingly, this move appears to be driven by the BPI, which is focused on protecting the music industry. File sharing accounts for a huge proportion of internet traffic - Ellacoya, a traffic optimisation firm - put file sharing at 37% of all internet traffic. However, music downloads likely account for a relatively small part of this, as each song shared is typically only 4 or 5 megabytes in size, versus between 350 to 700 megabytes per TV show episode or a movie. We suspect ISPs' would be much more receptive to cracking down on the download of movies and TV shows, as many ISPs' costs are directly related to the amount of bandwidth they have to supply and illegal TV and movie downloads are driving up bandwidth requirements. So called ‘fair usage’ policies are in great part a response to video file sharing. Those ISPs competing on cost (which includes many of those signing up to the current letter writing initiative) are operating on razor thin margins and would likely welcome the opportunity to put a significant dent in their bandwidth bills. As new services such as the BBC iPlayer and hi-definition YouTube like sites become more widespread, ISPs may find themselves with a strong commercial need to tackle video file sharing in order to control costs and stay competitive. Today’s letter-writing initiative will no doubt be followed by moves to tackle the ISP’s far bigger problem with distributing video, both legal and illegal.
Posted by ebizlaw team on the 24-07-2008
Yahoo and Icahn agree new deal
Our previous post looked at the attempts of Carl Icahn to force Yahoo! into a deal with Microsoft. Mr Icahn was seeking to remove all Yahoo! board members at the company's forthcoming annual general meeting. Now, a deal has been agreed which will see Mr Icahn and two of his nominees appointed to Yahoo!'s board in return for dropping his proposal.
Is this likely to be the end of matters? We doubt this very much. Mr Icahn is still keen on a sale of Yahoo! Whilst the immediate crisis is averted, he is now able to push for his favoured outcome from a much stronger position. However, it is not necessarily all doom and gloom for the company. Remember the old saying, "keep your friends close, but your enemies closer…."
Posted by ebizlaw team on the 23-07-2008
Yahoo and the activist investor
We were interested to see the latest development in the Yahoo saga. Following Yahoo's rejection of Microsoft's takeover offer - which eventually led Microsoft to walk away from the discussions - billionaire investor Carl Icahn has bought a stake in Yahoo and is seeking to replace the board of directors with his own nominees. His ultimate aim is to reopen talks with Microsoft.
According to the BBC, Mr Icahn has acquired a stake representing a 4.4% interest in Yahoo and wants to increase this to approximately 7%, which is significantly less than a controlling interest. This is just another example - albeit a pretty aggressive one - of the way in which activist investors are seeking to influence the direction of listed companies. Could it happen over here and what are the chances of success?
The short answer is that it already is, and in a variety of sectors. HSBC is having its own problems with Knight Vinke. There are numerous other listed companies where these disputes do not make the headlines. And companies should ignore activist investors at their peril. In the UK, unless you control a majority of the voting rights in a company you cannot force a director to quit. But the reality for most listed companies is that, if you lose the support of two or three key investors - even though they may collectively speak for much less than a controlling interest - then it can be very difficult to avoid calls for change on the board. Activist investors know this, and that's why they often bang the drum so loudly.
Posted by ebizlaw team on the 19-05-2008
Fashion etailers behind the curve
In a recent article in Drapers - the leading trade publication for the fashion industry (see "Working towards an online future" (Drapers February 4, 2008)), it was reported that there are still a significant number of fashion retailers that do not have any online presence. This is in itself is surprising, particularly as most companies have moved on and are already embracing the new concepts and technologies that have been pioneered by the so-called ‘Web 2.0” businesses (such as ebay, facebook and youtube). Even lawyers are writing blogs (!) and we are supposed to be conservative. We thought the fashion industry was supposed to be innovative and cutting edge.
‘Web 2.0” refers to the way people interact and collaborate online through channels such as wikis, blogs, forums and social-networking sites. Taking advantage of web 2.0 is about recognising that interactivity represents a richer way of engaging with your customers and wider community.
The article in Drapers alludes to the fact that fashion etaliers need to consider encouraging interaction such as customer feedback and reviews. We would suggest that these etailers need to go much further than this and put web 2.0 strategies at the heart of their online business to effectively engage with today’s web community and the “my space generation”. With new business opportunities comes a certain amount of risk. With web 2.0, this risk is principally in the form of issues concerning content liability. Are you responsible for a customer's comments and interactions online? Potentially, but this risk can be managed in such a way so that etailers are able to take advantage of this new way of doing business online.
Posted by ebizlaw team on the 29-02-2008
Data Protection Day goes out with a whimper
We should congratulate the Royal Liverpool and Broadgreen University Hospital Trust.
28 January 2008 was Data Protection Day, as declared by the Council of Europe. The idea was that, on Data Protection Day, events would be organised all over Europe to raise awareness of data protection and inform citizens of their rights and of good practices.
One might think that this would be particularly pertinent to the UK. In his latest Annual Report the Information Commissioner said that recent security breaches provide a powerful illustration of the need to ensure that safeguards are achieved in practice and that the roll call of banks, retailers, Government departments, public bodies and other organisations which have admitted serious security lapses is "frankly horrifying".
So what happened on Data Protection Day? Aside from the Information Commissioner issuing a revised code of practice on the use of CCTV, the only other UK initiative reported to the Council of Europe was that taken by the Royal Liverpool and Broadgreen University Hospital Trust. They set up an information stand in the main foyer of the hospital, offering guidance with regards to securing personal information and organised a number of events and speakers.
This apparent apathy highlights the disconnect between the importance to every citizen of personal data security on the one hand and the limited powers and resources available to the Information Commissioner on the other. The fact that the Government itself is one of the largest processors of personal data should not inhibit it from redressing this imbalance.
Posted by Nigel Miller on the 28-01-2008
Internet shopping
The UK internet shopping market is estimated to be worth over £21.4bn, and last year over 20 million people shopped online with nearly a third of them spending over £1,000. But a recent report from the OFT also found that some shoppers could find better deals by searching more effectively, many could do more to protect themselves online, and most do not know that they have cancellation rights when shopping on the internet.
The OFT also found that many businesses did not know their obligations under the Distance Selling Regulations which provide additional protection for shoppers when buying online. Some businesses could also do more to address consumers' concerns about privacy and security.
It is surprising how many on-line businesses ignore the legal requirements. It is not too difficult to be legally compliant, yet if you ignore the rules you risk regulatory actiom, adverse publicity and loss of goodwill. It's a no-brainer - contact us now so we can make sure you comply!
Posted by on the 06-01-2008
