AWAITING THE CORPORATE CULL

Changes in corporate strategy act as an alarm call to would-be acquirers of corporate venturing portfolios. Consider, for example, the announcement in June last year that Nokia and Siemens were to merge their communications service provider (CSP) businesses to form a Nokia-controlled joint venture, Nokia Siemens Networks.

The deal, which concluded in March this year, was followed just a month later by another, albeit less publicised, transaction: the sale of the Siemens Communications Fund to secondary direct investor Cipio Partners. Although financial details of the deal were not disclosed, Cipio hailed it as “one of the largest secondary direct portfolio transactions completed in the last few years”.

According to those familiar with the sale of portfolios by corporate groups, they are an eminently predictable source of deal flow. In the case of Siemens, the Communications Fund provided an invaluable window on technological developments in the space all the while the CSP unit was a core activity: a rationale that disappeared with the signing of the merger deal. Siemens continues to have active venture investment programmes in the fields of energy and environmental care, automation and control, industrial and public infrastructure and healthcare: all of which remain core business activities.

While the sale of the Siemens Communications portfolio demonstrates that strategic initiatives can always act as a trigger for a sell-off, the broader picture in recent times has been a tendency to launch rather than divest corporate venture funds. “Corporates are ‘market timers’ and, at the moment, many are highly profitable and have surplus budgets,” says Tom Anthofer of Cipio Partners. The right backdrop, in other words, for having luxuries such as venture programmes which, in more challenging times, would be dropped.

The ephemeral nature of corporate venturing programmes is well illustrated with reference to General Electric Co (GE). In October 2002, the conglomerate notably began the winding down of GE Equity, its private equity arm, while also putting a freeze on direct investments in venture capital funds. In April this year, however, GE waded back into the venture space with the launch of a new $250 million media and technology fund to target areas such as digital advertising and social networks.

Despite GE's apparent confidence and the strong level of support for corporate venturing generally, there may yet be a sting in the tail. The recent stock market shocks triggered by problems in the sub-prime mortgage and buyout debt markets may act as the catalyst for some strategic re-evaluation in the corporate ranks. And corporate venturing may come to be seen, not for the first time, as an unnecessary luxury.