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US venture-backed IPOs make gains while acquisition activity declines in Q1 200704/07/2007. Source: NVCA, Thomson Financial.
 Seventeen venture-backed companies raised $2.09bn through initial public offerings on US exchanges in the first quarter of 2007, according to Thomson Financial and the National Venture Capital Association. This volume represents a 70 per cent increase from the first quarter of 2006 when ten venture-backed companies went public.
Venture-backed merger and acquisition activity declined significantly with only 62 transactions completed this quarter compared to 104 in the first quarter of 2006. However, the average disclosed deal size for the first quarter of 2007 was $161.2 million, one of the highest quarters in the last five years.
"This quarter may mark a subtle shift in the exit mix for venture capital," said Mark Heesen, president of the National Venture Capital Association. "There appears to be a crack in the IPO window which changes the psychology of the market. In recent quarters, an IPO has not been a viable option for most of these companies. However, the increase in venture-backed IPO registrations is an encouraging sign. At the same time, large corporations have slowed their acquisition pace, likely because of stock market uncertainty and earnings pressure. This all means fewer, but higher quality acquisitions as evidenced by the numbers."
IPO Activity Overview
Nine IPOs in the technology sector comprised nearly 67 percent of the total amount raised in the U.S. markets during the first quarter of 2007, bolstered by the $600 million offering from Washington-based Clearwire Corporation -- the largest venture-backed IPO since October 2004. The wireless internet service provider listed 12 million shares on NASDAQ for $25 per share via bookrunners Merrill Lynch, Morgan Stanley and JP Morgan. Venture investors in Clearwire include CIC Partners, Convergent Investors, The Edgewater Funds, Goldman Sachs, Intel Capital, Liberty Associated Partners and Pharos Investment Group.
Activity in the Life Sciences sector saw seven IPOs come to market raising $600.4 million during the first quarter. The largest IPO in the sector was the $288 million offering from Accuray, a California-based surgical equipment manufacturer. Led by JP Morgan and UBS, the 16 million share listing was priced at $18 per share, and has increased nearly 27% over its initial offer price. Venture investors in Accuray include Marubeni Corporation and several undisclosed funds.
Of the venture backed companies that went public during the rolling twelve month period, 70% were trading at or above their offering price as of March 29, 2007.
Forty-four venture-backed companies have filed for an initial public offering with the SEC since 2005 and are currently "in registration". The venture-backed pipeline totals compare very favorably to the 24 companies in registration at the end of the first quarter of 2006.
"The mostly positive aftermarket performance of venture-backed offerings and the strong IPO pipeline over the past twelve months indicates the quality of the companies going through the exit process", said Alex Tan, Global Private Equity Research Manager at Thomson Financial.
In addition to the US market activity, Norwegian pharmaceutical concern, Algeta ASA listed on the Oslo Stock Exchange and was the only US-backed venture-backed company to go public on a non-US exchange during the first quarter.
Merger and Acquisition Overview
Although up slightly from fourth quarter of 2006, the first quarter venture-backed M&A volume of 62 transactions fell sharply from last year at this time. However, the average disclosed deal size was $161.2 million, the second highest quarterly average since 2001.
The Technology sector dominated the venture-backed M&A landscape, with 51 deals and a disclosed value of nearly $2.0 billion. Within Technology, the Computer Software and Internet Specific sectors each saw 18 transactions. The Internet Specific sector reached $1.1 billion in disclosed deal value -- 54 percent of the overall value within technology. Four Life Sciences companies were acquired, with a disclosed deal value of $1.0 billion.
The largest disclosed deal of the quarter was the $564 million acquisition of foreign-exchange portal operator Currenex Inc by State Street Corporation in March. The second largest deal was the $525 million acquisition of surgical equipment developer St. Francis Medical Technologies by Kyphon Inc.
Deals bringing in the top returns, those with disclosed values greater than 4x the venture investment, accounted for 50% of the total compared to 65% last quarter. Conversely, those deals returning less than the amount invested accounted for 25% of the quarter's total, down from 28% of the total last quarter.
The National Venture Capital Association (NVCA) represents approximately 475 venture capital and private equity firms. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation. For more information about the NVCA, visit www.nvca.org
Thomson Venture Economics, a Thomson Financial company, is the foremost information provider for equity professionals worldwide. For more information about Venture Economics, visit www.ventureeconomics.com
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