Market Overview
The housing market, and the corresponding mortgage crisis that has sent banks and mortgage companies into a tailspin, continues to dog the US economy. Janet Yellen, the president of the Federal Reserve Bank of San Francisco, expects the financial services turmoil to be “major drag” on the economy into 2009. Recently released data on the housing market also seems to show that a turnaround is not yet in sight. Housing construction dropped 11.9 percent to a seasonally adjusted annual rate of 947,000 units, a much bigger decline than economists had been forecasting. New construction of single-family homes, considered the core of the housing market, was at a rate of 680,000, or 5.7% below last month's number. Single-family housing starts have not been this low since May 1980. Building permits also fell in March, signaling even more problems ahead for the beleaguered housing industry.
A recent survey conducted by the National Association for Business Economics (NABE) also shows increasing pessimism about the state of the US economy. The number of economists who responded to the survey who believe the economy will shrink in the first half of the year jumped from 10 percent in January to 30 percent in the recent survey, with the majority of those polled forecasting economic growth between zero and 1 percent. Given the continued struggle to kick-start economic growth and Fed Chairman Ben Bernanke’s recent comments that a "recession was possible," much of Wall Street is predicting a quarter-point cut as the most likely outcome of the Fed’s April 30 meeting.
Deal Overview
Although recent headlines have trumpeted the fact that venture capital investments in the US dropped in the first quarter of 2008 compared to 2007, the $7.1 billion invested during the quarter was the fifth-largest amount in a single quarter since 2001, according to National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters. However, it represented the first year-over-year decline in the venture capital industry's quarterly investments since the end of 2005, with total investments down 5 percent, from $7.5 billion in 2007 to $7.1 billion in 2008. Industry experts are confident that investment will pick up in the months ahead, as the first quarter is typically the slowest time of the year for venture capital deals.
New England venture capital investments fell far more sharply than the national numbers, declining 40 percent to $576.7 million according to Dow Jones VentureSource. This was the lowest level of investment since 1998, when regional investments were approximately $439 million.
Despite the gloomy economic climate, strategic buyers, especially in the life sciences and technology markets, continue to make acquisitions. Local activity in the technology market includes Burlington-based Nuance Communications continuing its recent buying spree with an announced deal to purchase medical transcription software company eScription Inc. for $363 million. Dow Jones & Company announced the acquisition of Maynard-based, Generate Inc., a business intelligence company, as part of its formation of a Business & Relationship Intelligence business unit. Several area biotech companies have also made the M&A wire, with GlaxoSmithKline plc announcing a $725 million offer for Sirtris Pharmaceuticals and Takeda Pharmaceutical targeting Millennium Pharmaceuticals Inc. for $8.5 billion.
