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Venture-backed IPOs continue to make gains while acquisition activity declines in Q2 200726/09/2007. Source: National Venture Capital Association (NVCA), Thomson Financial.
 Twenty-six venture backed companies raised $4.27bn through initial public offerings on US exchanges in the second quarter of 2007, according to the Exit Poll report by Thomson Financial and the National Venture Capital Association. This dollar volume represents 112 per cent increase from the second quarter of 2006 when nineteen venture-backed companies went public raising $2bn.
Venture-backed merger and acquisition activity declined with 67 transactions completed this quarter compared to 95 in the second quarter of 2006.
"The recent improvements in the IPO market cannot totally offset the low M&A volume this quarter," said Mark Heesen, president, National Venture Capital Association. "However, company quality continues to be strong and there is a large backlog of maturing companies awaiting an initial public offering or acquisition. Most venture investments exit through acquisitions, so it's important that this market remain vibrant. This softness may reflect some digestion issues on behalf of the large acquirers. Once some larger deals move through, we hope to see the volume rebound in the second half of the year," Heesen added.
Venture-Backed Liquidity Events by Year/Quarter, 2001-2007ytd
IPO Activity Overview
The Technology sector saw thirteen IPOs come to market raising over $2.5 billion during the second quarter, bolstered by the April 19th issue of MetroPCS Communications, the third largest venture-backed offering of all time. Led by Bear Stearns, Bank of America, Merrill Lynch, and Morgan Stanley, the 50 million share listing was priced at $23 per share for a total offer value of $1.15 billion. Venture investors in the company include TA Associates, Inc., Accel Partners, M/C Venture Partners, and Flagship Ventures.
The Life Sciences industry accounted for 42 percent of venture-backed IPO activity during the second quarter of 2007. The largest IPO in this sector was the May 9th issue of TomoTherapy, Inc. The precise radiation technology development company listed 11.7 million shares at $19 per share for a total offer value of $223.1 million, making it the fourth largest Life Sciences issue of all time. The IPO was managed by Merrill Lynch and key venture investors in the company include Ascension Health Ventures LLC, Endeavor Capital Management, Venture Investors LLC, the State of Wisconsin Investment Board, and Advantage Capital Partners.
"The high dollar volume of Technology venture-backed offerings is encouraging for other Technology companies in the pipeline", said Alex Tan, Global Private Equity Research Manager at Thomson Financial. "If year-to-date volume is any indication of the rest of the year, 2007 should be a noteworthy year for venture-backed IPOs in the sector."
The Boston and San Jose metropolitan regions were home to the most venture-backed companies with IPO exits in 2Q 2007. In Boston, three companies focused in Life Sciences, two in Technology, and one in Clean Tech. In San Jose there were four Technology and two Life Sciences issues. Dallas, city of headquarters for MetroPCS, realized the highest dollar volume of offerings from the one issue.
2Q 2007 Venture-Backed IPO Metro Region Breakdown
As of June 27, 2007, 69% of the venture-backed companies that went public during the rolling twelve month period were trading at or above their offering price.
Forty venture-backed companies have filed for an initial public offering with the SEC since 2006 and are currently "in registration." This marks a slight decrease from the 41 companies in registration at the end of the second quarter of 2006. There were 44 ventured-backed companies in the registration pipeline at end of Q1 2007 and 36 at the end of calendar year 2006.
In addition to the U.S. market activity, Australian pharmaceutical company, QRxPharma Ltd. listed on the Australian Stock Exchange and was the only company backed by U.S. venture financing to go public on a non-U.S. exchange during the first quarter.
Merger and Acquisition Overview
Venture-backed merger and acquisition exits declined from the previous quarter and 2Q 2006. The Technology sector dominated the venture-backed M&A landscape, with 52 deals and a disclosed value of approximately $1.7 billion. Within Technology, the Computer Software and Internet Specific industries saw 21 and 18 transactions, respectively. The Computer Software sector reached $822.3 million in disclosed deal value - 50 percent of the overall value within Technology. Eight Life Sciences companies were acquired, with a disclosed deal value of $807 million.
Venture-Backed M&A Industry Breakdown
The largest disclosed deal of the quarter was the $500.3 million acquisition of financial analytic software developer OutlookSoft by Systeme Anwendungen Produkte in June. The second largest deal was the $325 million acquisition of biotechnology company Morphotek by Eisai Inc.
Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 22 percent of the total compared to 39 percent last quarter. Conversely, those deals returning less than the amount invested accounted for 48 percent of the quarter's total, up from 25 percent of the total last quarter.
The National Venture Capital Association represents approximately 480 venture capital and private equity firms. Their mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation.
Thomson Financial is a provider of information and technology solutions to the worldwide financial community.
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