Despite three IPOs, venture-backed exits drop to trickle in second quarter
A drought for initial public offerings by venture-backed companies finally ended in the second quarter of this year, but exits for venture investors still fell sharply in values, Dow Jones VentureSource reported Wednesday.
Three firms went public on Wall Street, compared to one over the previous 13 months. And that IPO occurred last August. The deals generated $232 million.
The National Venture Capital Association and Thomson Reuters reported five IPOs, noting that all were backed by venture capital. However, the NVCA report noted that companies aren’t rushing to the IPO gate.
“With just 10 companies currently in registration, the pipeline suggests it is going to be a long recovery period,” spokesperson Emily Mandell said.
A drop in mergers-and-acquisitions both in value and number offset the better IPO news. M&A activity generated only $2.8 billion, the lowest total since 1999, according to VentureSource. In the same quarter a year ago, deals generated $6.48 billion.
Total M&As dropped to 67 in the second quarter from 89 a year ago.
The median for M&As dropped to $22 million, the lowest since 2003 and a 46 percent drop from a year earlier.
Overall, VentureSource called the quarter “one of the worst for venture-backed liquidity since the doldrums of early 2003.”
The NVCA counted 59 M&As worth $2.6 billion.
Venture-backed firms going public were SolarWinds from Austin, Texas; OpenTable from San Francisco; and Medidate Solutions out of New York.
VentureSource said it did not include IPOs from two firms (Bridgepoint and DigitalGlobe) since both were not backed by venture capital.
“The IPO window appears to be opening as the first three public offerings since the third quarter of 2008 closed in the second quarter,” said Jessica Canning, director of global research for VentureSource, in a statement. “The success of these transactions is clearly a testament to the strength of these companies and their ability to close deals in current market conditions.”
Mark Heesen, president of the NVA, put a positive spin on the IPO action.
“The fact that several venture-backed companies successfully entered the public markets and performed well is encouraging,” he said. “However, we remain concerned about the extremely thin pipeline of companies in registration as it indicates that it will be some time before we can even be in a position to return to healthy IPO activity levels.”
Daniel Primack, writing at Thomson-owned Private Equity Hub, added: "Each of the five offerings was trading above its offering price, as of yesterday’s market open, with an average increase of 22.35 percent. The quintet was: DigitalGlobe, SolarWinds, BridgePoint Education, MediData Solutions and OpenTable."
In some positive signs, VentureSource reported venture-backed firms needed to raise less money ($16.3 million, 30 percent less than in 2008) and moved to an exit in less time (4.5 years, 25 percent less than the median in 2008).
“This is the second straight quarter of reduced time to an M&A, marking a potentially emerging trend for this source of liquidity,” Canning said.
Cisco Systems was involved in the two largest acquisitions, closing on Pure Digital Technologies and Tidal Software.
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