PRINT THIS PAGE US IPO Market showing some signs of improvement 10/01/2007. Source: NVCA and Thomson Financial. 
Mergers and acquisitions continued to dominate the exit scene for the full year 2006, says the NVCA and Thomson Financial. The data reflects another year of heavy reliance on the M&A market for venture capital investment exits. Twenty-one venture-backed companies raised $1.835 billion through initial public offerings (IPOs) and 56 venture-backed M&A deals were reported in the fourth quarter of 2006 according to the Exit Poll report by Thomson Financial and the National Venture Capital Association (NVCA).
The data reflects another year of heavy reliance on the M&A market for VC investment exits with a total of 58 venture-backed IPOs raising $5.3 billion in 2006 and 335 M&A transactions with a total disclosed value of $16.6 billion for the full year.
In terms of number of exits, 2006 venture-backed activity in both the IPO and acquisition markets varied only slightly from 2005 levels although these transactions realized higher valuations. The year 2006 marks the second strongest IPO year in terms of dollars raised out of the last six years and it is also the third strongest of the last six in terms of average IPO amount. The average acquisition value for a venture-backed company, for those deals where the acquisition price was disclosed, is the highest in six years at $113.8 million per deal.
There were 17 venture-backed IPOs on non-US exchanges for the year and three of those were in Q4.
IPO Activity Highlights
The largest IPO of the fourth quarter was the $204 million offering from NewStar Financial, Inc. Based in Boston, the debt capital solutions provider priced 12 million at $17 a share. Book Managers were Goldman Sachs and Morgan Stanley.
The perennial sector leader, Technology raised $916 million in public offerings, followed closely by the Life Sciences industry which captured $490 million. The Non-High-Technology sector priced three IPOs that accounted for $428 million.
In addition to the IPOs completed this quarter, there are currently 36 venture-backed companies "in registration" with the United States Securities and Exchange Commission. These companies have filed with the SEC in 2005 or 2006 and are now preparing for their initial public offerings. This is a decrease compared to the 51 companies in registration at the end of the third quarter of 2006. This compares with 57 companies in registration at the end of 2004 and 16 in registration at the end of 2005.
"The year ended strongly for the venture-backed IPO market as we had the highest quarterly volume in two years. However, one quarter does not mean we are out of the woods yet and ideally we would like to see more companies in registration if a recovery is in sight for 2007," said Mark Heesen, president, National Venture Capital Association. "There is the potential to see measurable Sarbanes-Oxley relief for smaller public companies in 2007, which would be a welcome boost for the US IPO market. In absence of this reform, however, venture capitalists will look at other liquidity paths -- foreign exchanges or sale to financial intermediaries -- as viable exit alternatives in the coming year," Heesen added.
Merger and Acquisition Overview
Total acquisition count declined in the fourth quarter for the third consecutive quarter although 2006 totals are similar to the prior several years. The average disclosed deal size for the fourth quarter 2006 was $165.3 million, an improvement from third quarter 2006 and almost triple fourth quarter 2005.
"Despite the lower acquisition volume in the fourth quarter, the overall acquisition volume for 2006 is comparable with 2005 and 2004", said Alex Tan, Global Private Equity Research Manager of Thomson Financial.
The Technology sector continued to dominate the venture-backed M&A landscape with 44 deals and a disclosed value of $3.2 billion. Within Technology, the Internet Specific sector had 15 transactions, followed by the Computer Software sector with 14 deals. Nine Life Sciences companies were acquired in the fourth quarter with a disclosed deal value of $141.2 million.
The largest disclosed deal of the quarter was the $1.65 billion acquisition of online video sharing services provider YouTube, LLC by Google, Inc. The second largest deal was Sybase, Inc.'s $425 million acquisition of Mobile 265, Inc., which provides inter-carrier messaging solutions for wireless communications.
Acquisitions which returned more than 10x the amount of the original venture investment comprised 30% of the disclosed transactions for the quarter. At the opposite end of the spectrum, 30% of the disclosed acquisition deals returned less than the total venture investment. The smallest percentage of deals was 4.4% returned -- 1-4x investment for the 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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