Software Firms Feel Urge to Merge

SAN FRANCISCO -- Rackspace's(RAX Quote) recent IPO turned out to be a cautionary tale for tech companies that will keep buyout deals flowing.

Rackspace, the second significant tech IPO of 2008, fell 20% on its first trading day. The sour reception effectively put a detour sign over the IPO exit for private firms and their venture investors.

We won't see more tech IPOs this year because of the way Rackspace was "roughed up," predicts Brenon Daly, mergers analyst with The 451 Group.

As a result of the chilly IPO market, companies like Compuware(CPWR Quote), which has delayed the public spinoff of its Covisint division, will have to find buyers or sit on their hands until the IPO market picks up. ...