• Cnet News.com, Tuesday, September 16, 2008 11:02 AM

What dos the failure of Lehman Brothers and the $50 billion sale of Merrill Lynch to Bank of America mean for the technology industry, Cnet's Stefanie Olsen asks? Venture capital and finance experts claim that the uncertain financial climate at the nation's largest securities firms will most likely translate into fewer IPOs, and slow the process for mergers and acquisitions.

Yesterday, the Dow Jones Industrial Average fell by just over 500 points (a 4.4% drop), capping the worst investor sell-off since the Sept. 11 terrorist attacks in 2001. The precipitous drop in investor confidence has been tied mostly to the mortgage credit crisis. Meanwhile, Olsen says tech sector investment is being squeezed by fewer opportunities for exits from IPOs and buyouts and a more cautious approach to M&A. Now that Lehman and Merrill are out of the picture, there are fewer healthy investment banks to underwrite such deals, anyway.

"An oligopoly is not the best thing for the American capital system," said Mark Heesen, president of the trade group National Venture Capital Association. "When you have so few investment firms out there, it makes it difficult to get a deal at the end of the day." Indeed, the numbers corroborate Heesen's concerns, as there were just 120 acquisitions in the first half of the year. In a typical healthy year, Heesen says there are about 350.

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