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LA QUINTA, Calif.-- Goldman Sachs kicked off the second day of its annual Technology Investment Symposium here Tuesday with a roundtable discussion of a topic it knows better than any other: investment banking.

Six members of Goldman's high technology banking team -- Stuart Bernstein, Matt L'Heureux, Paul Phillips, Kevin Quinn, Jeff Adams and Lawrence Calcano gave a cautiously optimistic prognosis of the mergers and acquisitions business.

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That might sound hard to believe. Tech M&A has just completed one of its slowest months since the Russian debt crisis of 1998. Meanwhile, the IPO market has crawled into 2001 a mere shadow of its robust form over the past couple of years.

Goldman's team acknowledges that the IPO bar has been raised significantly. "For early stage companies, you now need about $10 million of quarterly revenue to go public, vs. maybe $1 million last year," said Bernstein. "You need to be two or three quarters from profitability; last year, it was two or three years."

These tougher conditions will ultimately drive private companies toward M&A, say Goldman's bankers. An important factor in determining when that happens depends on the calculus of diminishing expectations, they think.

"Last year there were roughly 45 transactions in excess of $500 million, and two-thirds of them were private companies," said Quinn. "A lot of valuation expectations for private companies have not been reset yet. That's starting to happen now. I think that as valuation expectations moderate, that will continue to drive M&A activity."

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That lowering of expectations, of course, will happen on buyer's terms. "Tech M&A has always been a buyer-driven market," said L'Heureux. "Technology companies are bought, not sold. Even if a company figures out that they're not going to go public, just raising their hands and saying, 'I'd like to be sold,' is not an effective way to get transactions done. Because they're unable to go public, they're position is somewhat weakened. The buyers ultimately will make the decisions as to the pace of the market."

Goldman's team agreed that the single biggest determinant of the psychology of both buyers and sellers -- and thus, the near-term future of M&A -- has to do with the resolution of the current debate on where the economy is headed. To Quinn, what's important isn't how that debate gets resolved, but rather that it


resolved, period.

Quinn cited the near-total shutdown of the merger market during the Asian crisis and the

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near meltdown in 1998. "The market shut down for six months, but there remained a lot of talk, and it came back big in the spring of 1999. The market is just waiting for a catalyst, for a new conventional wisdom to form on what the beginning of 2002 looks like. The back end of 2001 will look great or the back of 2001 will look lousy. But even if everybody agrees it's going to look lousy, people are willing to make bets on that."

An optimistic view befitting men whose livelihood depends on the betting getting under way sooner rather than later.