Click here for printer friendly page
US M&A activity continues to drive exit market14/02/2006. Source: NVCA, Thomson Venture Economics. 
 Q3 of last year saw a doubling of venture-backed IPO activity, says an NVCA and Thomson exit poll, but this was not enough to recover from a dismal first half for 2005.
Nineteen venture-backed companies raised $1.5 billion through Initial Public Offerings (IPOs) and seventy-six venture backed companies were acquired in the third quarter of 2005, according to the inaugural Exit Poll report by Thomson Venture Economics and the US National Venture Capital Association (NVCA). Of the acquired targets, thirty-three reported a combined value of $3.12 billion. The third quarter marks the first time in 2005 that the total venture-backed IPO offering amount has been over $1 billion, while it is the third consecutive quarter in which total disclosed M&A value passed the $3 billion mark.
"The near doubling of IPO volume this quarter is welcome but frankly isn't enough and we fully anticipate that 2005 will fall well short of 2004 in this area," said Mark Heesen, President of the NVCA. "This quarter's Exit Poll demonstrates a continued preference by venture-backed companies for the M&A market as the path to liquidity. Until the regulatory and market hurdles of going public are lowered, we expect to see lackluster IPO activity, which makes the ongoing stability and strong valuations in the M&A market that much more critical to venture returns."
IPO Activity Highlights
The third quarter's largest IPO was Focus Media's $171.7 million offering. Focus Media was backed by 3i Group, Draper Fisher Jurvetson ePlanet, Goldman, Sachs & Co., United Capital Investment Group (UCI), and CDH FM. The second largest IPO of the quarter was Adams Respiratory Therapeutics' $135.2 million offering. Adams Respiratory Therapeutics was backed by the Perseus-Soros Biopharmaceutical Fund, Tullis-Dickerson, Talon Equity Partners, Marquette Venture Partners, and Merrill Lynch Capital Partners. The company was the largest Life Sciences IPO of the quarter. Overall, seven Life Sciences companies raised a total of $451.0 million in the U.S public markets in Q3.
The Technology sector led the quarter, with nine venture-backed IPOs raising a total $759.1 million. The largest Technology IPO, and third largest overall, was Heartland Payment Systems $121.5 million offering. Heartland Payment Systems was backed by LLR Partners and Greenhill Capital Partners.
In addition to the IPOs completed this quarter, there are currently 30 venture-backed companies "in registration" with the Securities and Exchange Commission. These companies have filed with the SEC in 2004 or 2005 and are now preparing for their initial public offerings. This figure is down from the 38 venture-backed companies that were in registration at the end of Q2 2005. For the rolling 12 month period ending September 30, 2005, 56% of the companies that went public are currently trading above their offering price.
Merger and Acquisition Highlights
The third quarter M&A disclosed valuations represent a 28% decrease from last quarter's $4.37 billion among thirty-two disclosed value deals, and a 20% decrease from the $3.92 billion disclosed in the third quarter of 2004. However, the third quarter average ($94.6 million) and median ($65 million) remained above the $89 million average and $35.2 million median of Q3 2004.
A survey of M&A activity by industry sector shows that Software targets rebounded in the third quarter, with fifteen out of thirty-one reporting a combined value of $1.2 billion and an average deal size of $80.2 million. This is a marked improvement from the second quarter when ten targets disclosed a total of $510 million and an average of $51 million. Three Software companies made it into the top ten deals with a combined value of $678.5 million, slightly more than half of the sector's entire total. These three targets were DeCru at $260 million; WildCard Systems with $228.5 million; and ArborText for $190 million.
The largest deal of the quarter was the acquisition of Networking and Communications company Peribit Networks by Juniper Networks for $337 million in July. The second largest was Citrix Systems' purchase of Internet infrastructure company NetScaler for $300 million. These were the only two deals at or above the $300 million mark.
Regarding M&A activity, Daniel Benkert, Senior Analyst at Thomson Financial says, "The third quarter's decline in average disclosed deal size from both the previous quarter and the third quarter of 2004 does not herald a souring of the market or an extended downturn. There are no broader economic factors indicating that this is anything other than the function of normal quarter-to-quarter fluctuations in what is an otherwise very healthy environment and year for M&A activity."
A ratio analysis of company acquisition price to the total venture investment shows an improvement in successful exits for the first three quarters of 2005 compared to the same time period in 2004. During the first three quarters of this year, 35% of the disclosed transactions returned more than 4X the original venture investment compared to 34% in 2004. A lower percentage of transactions lost money as well with 28% of disclosed acquisitions returning less than the original investment in 2005 vs. 33% in 2004.
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
|
