July 1 (Bloomberg) -- Acquisitions by startups fell to the lowest level in a decade in the second quarter as the recession stopped companies from buying smaller competitors.

A total of 59 startups merged with other companies, falling 30 percent from a year earlier and dropping to the lowest level since 1999, the National Venture Capital Association said today. Five U.S. startups have had initial public offerings so far this year. In 2007, before the financial crisis, there were 86.

Acquisitions and IPOs, the two ways for venture capitalists to cash in their investments, have almost come to a standstill, NVCA president Mark Heesen said. With the IPO market struggling, larger technology companies are waiting before proposing takeovers, confident that prices will fall, he said.

“The buyers on the merger and acquisition side got smart real fast,” Heesen said in an interview. “They wait for companies to come crying to them to get bought.”

No venture-backed companies went public between September and March -- the longest slump since Arlington, Virginia-based NVCA began collecting data in 1971. Only 11 startups have had IPOs since the end of 2007, and there is little immediate prospect for improvement, said Paul Bard, an analyst at Renaissance Capital in Greenwich, Connecticut.

‘This Year Is Done’

Only 10 startups have filed pre-IPO paperwork with U.S. regulators, and none have done so since January, said Emily Mendell, an NVCA vice president. That signals that deals such as the May IPO of online restaurant-reservation service OpenTable Inc. failed to spur other young companies to act. It also means the market won’t revive in the next few months, Bard said.

“Unless filing activity spikes in the next two to three weeks, we’re unlikely to see a more sustainable pickup in VC- backed IPOs before Labor Day,” Bard said in an e-mail. “The bar will remain high for most VC-backed deals to get done.”

Even if the 10 biggest venture capitalists had 25 companies ready to go by early next year, that would still leave IPOs at about a third of their levels from 2004 to 2007, he said.

“It’s crappy,” Heesen said. “You thought maybe other companies would put their feet in the water but you haven’t seen it. You won’t see an IPO market that’s vibrant this year. This year is done.”

No Bargaining Power

That means startups lack bargaining power in merger talks, keeping offers low and stalling many negotiations that do occur, Heesen said.

Only 13 of the 59 companies that sold out reported how much they were paid, the NVCA said. Prices were higher than in the first quarter, a possible sign of improving conditions later this year, it said.

Cisco Systems Inc.’s $590 million deal to buy Pure Digital Technologies Inc., maker of the Flip Video camera, helped drive up the average merger price to $197.7 million.

Five companies commanded less than venture capitalists had invested, NVCA said. Purchases of medical-instrument makers CoreValve Inc. and Chestnut Medical Technologies Inc. were the only ones where early backers received 10 times their outlay, the traditional standard for a venture-capitalist home run, Mendell said.

CoreValve was bought by Minneapolis-based Medtronic Inc. in April and Chestnut sold to Plymouth, Minnesota-based EV3 Inc. last week.

LogMeIn Jumps

The first IPO of the third quarter took place today, with Woburn, Massachusetts-based LogMeIn Inc. jumping 25 percent on its first trading day.

LogMeIn sold 6.67 million shares at $16 apiece, the high end of its estimates. The offering was led by JPMorgan Chase & Co. and Barclays Capital. The stock rose $4.02 to $20.02 at 4 p.m. New York time in Nasdaq Stock Market trading.

LogMeIn sells Internet connectivity services that let companies do work on remote computers and other devices. For example, Best Buy Co. uses LogMeIn to repair Web-connected TVs without visiting a customers’ homes, according to Renaissance.

The company had a profit of $1.5 million in the first quarter, while sales jumped 73 percent to $17.2 million. Last year, it lost $7.75 million on sales of $51.7 million.

“It’s a wonderful business,” said Paul Deninger, a technology banker at Jefferies Group Inc., which isn’t involved in the IPO. “Recurring revenue, stratospheric gross margins, positive cash flow and great growth.”

LogMeIn’s IPO will be counted as having happened in the third quarter, Mendell said.

To contact the reporter on this story: Tim Mullaney in New York at tmullaney1@bloomberg.net

Last Updated: July 1, 2009 16:12 EDT