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Silicon Valley lawyers are scurrying to take companies public, promising a hot summer for corporate lawyers. But an autumn chill may quickly cool the deal climate, and dealmakers say startups are racing to get to market before the November presidential election. “Our partners in Silicon Valley feel like they’re in a bubble that will last seven months. There’s a great urge to get to market between now and September,” said Pillsbury Winthrop Managing Partner Marina Park. “There’s not a lot of optimism this will last.” Corporate lawyers say they have been working on more deals in the last several months than in any period since the boom. Fourteen companies went public in California so far in 2004, compared with 21 in all of 2003, according to Thomson Financial. And the perception by some that the upswing may fall flat around election time — regardless of who wins — may further catalyze IPOs. One of Pillsbury’s Silicon Valley-based partners, Lior Nuchi, noticed IPOs beginning to speed up after Thanksgiving last year. “It all started happening after the Nasdaq was at 2000 for a while and it seemed like war was behind us,” Nuchi recalled. “It seemed like if you were going to do a deal, you had calm waters to sail through. I think people saw that could change very quickly.” Investment bankers began courting attractive companies that had been waiting for the right conditions to go to market. Soon business headlines reported a flurry of IPOs and other deals. Pillsbury, for example, helped Fremont-based IT services contractor Synnex Corp. raise $48 million in a December IPO. In February, Pillsbury took Sunnyvale-based chipset-maker Atheros Communications Inc. to market and raised $144 million. Nuchi said follow-the-leader psychology kicked in as more companies planned their coming-out parties. And the recent flare-ups in Iraq only add to the urgency, he said. Whatever the cause, local firms’ IPO pipelines are filling quickly. Pillsbury has roughly seven company-side IPOs underway on the West Coast and four underwriter deals in the works. “We’re seeing new deals everyday,” Nuchi said. Fenwick & West partner Laird Simons III said he is working on six IPOs and four follow-on financings right now. “We haven’t seen that since spring 2000,” Simons said. The summer rush-to-market doesn’t necessarily reflect investor fears about the particular policies that might be adopted by President Bush or the anointed Democratic challenger, John Kerry. “There will be an inevitable cautiousness in the securities markets leading up to the presidential election,” said MoFo corporate partner Robert Townsend. “This is what we’ve seen in past cycles and what the underwriters are advising our issuer clients. That’s completely predictable.” While Townsend expects the current rush to slow in the fall, he said his firm is so busy with IPOs and, to a lesser extent, M&A transactions, it is looking to hire 10 associates. Fenwick & West corporate partner David Healy said a glance at Standard & Poor’s reveals that stock markets rise before elections and drop after. “The party in power uses its fiscal power to pump up the economy before an election so everyone is in a good mood and will reelect the incumbent,” he said. But deficits have been ballooning, said Fenwick & West tax partner Ward Connolly, which is reason for caution. “Fear of inflation has already spooked the stock market,” Connolly said. “In order to control inflation, the Fed may raise interest rates, which would tend to shrink the economy” and deflate the stock market. Silicon Valley-based Gray Cary Ware & Freidenrich partner Diane Frankle has heard concern about climbing interest rates. “The word is, people expect interest rates to stay relatively low until the election and then expect them to go up,” Frankle said. “Anything related to that would be affected.” Democrats are typically seen as unfriendly to big business. Furthering that perception, Kerry’s promises to reduce outsourcing — a popular staffing trend in the Valley — are viewed as a threat, said Nuchi. As mudslinging intensifies closer to the election, Nuchi expects jitters to become outright quakes. “There’s hardly a lunch I go to where people aren’t talking about the election and this bubble.” But some Valley players are more optimistic that interest rates will remain low and markets will continue to improve after Nov. 2. Many bankers and CEOs believe “there will be a post-election boomlet but not tied to the election, rather tied to the economy recovering,” Frankle said. “It’s a very funny time right now. It’s very schizophrenic.”

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