Looks like dealmaking in the tech sector, which has remained relatively unscathed during the subprime and credit crises, might finally capitulate to the limping markets in 2008.

Tech banking could become a bit more “desert-like” this year as dealmaking slows down and the IPO pipeline dries up, tech analysts The 451 Group said in a report that surveyed more than 110 bankers.

The LBO market, which collapsed due to last summer’s credit market upheaval after a five-year bull run, is mostly to blame for bankers’ dour outlook. About 90 percent of the $172 billion in tech buyout spending last year came in the first half of 2007. After the nightmarish summer, private equity deal flow fell to 2004 levels, with total deal value dropping to $5 billion in the fourth quarter of 2007.What’s worse, tech bankers don’t expect a return of the LBO market in 2008 — two out of five bankers think tech buyout spending will shrink even more this year.

Tech bankers didn’t even seem excited by the bullishness of corporate acquirers, many of whom have made no secret of their robust appetite for deals in 2008. One would assume all this potential dealmaking from tech giants like Microsoft and Cisco Systems would require all flavors of banking services, but expectations of core merger-and-acquisition advisory services have tailed off, the report said.

Neither will public debuts of tech companies provide succor to bankers. Despite an upswing in tech IPOs, many of them venture-backed, since 2004, current market conditions are a wet blanket to any new and hot tech stocks, bankers said. The median pick stood at just 25 tech IPOs for 2008, compared to a median of 60 last year.

The result of all this doom and gloom? Investment firms are planning to hire less this year and cut headcount, and they’re already seeing a dip in banking fee rates. And with less money to go around, those surveyed expect bulge-bracket firms to pull out of tech banking and boutiques to go under.
(Photo: Reuters/Ali Jarekji)