Venture capital firms looking to exit from companies in which they have invested are cashing out at the highest rates since the “dot com” boom, according to Dow Jones VentureOne.
“Yes, after several years of uncertainty, the ‘venture capital rebound’ is officially over,” said Jessica Canning, director of Global Research for Dow Jones VentureOne.
In the third quarter, 90 venture-backed companies generated $10.5 billion in mergers and acquisitions. Another 11 firms when public with initial public offerings worth $662.5 million.
The M&A total was the highest quarterly total since 2000 and a 31 percent increase over the third quarter in 2006. The IPO total was up 4 percent over 2006. Among the IPOs, seven were IT firms and three were in health care. However, the median value of IPOs did decline 27 percent from 2006.
Companies are also needing more time to reach the exit ramps. From first equity financing to an M&A averaged seven years, the longest time to date, according to VentureOne statistics. The median time to reach an IPO after initial investment climbed to a record 8.5 years.
The number of companies being acquired has dropped, with 279 being bought compared with 338 through nine months of 2006. But the value of the deals – $28.3 billion – is nearly equal to the total of $31.9 billion for venture-backed M&As last year.
Looking ahead to the fourth quarter, VentureOne reported that 46 companies are prepared for IPOs.
"As the recent IPO registrations show, venture capitalists are making good on their pledges to take advantage of the favorable liquidity markets,” Canning said. “Most notable is that 22 venture-backed health-care companies have filed to go public. If these offers are completed, it would be far and away the most IPO activity we’ve seen in the health-care sector since the third quarter of 2000 – and a clear shift in exit strategy away from M&As."
Four Triangle companies have announced plans for IPOs: Biolex, TranS1, Consonus and Talecris.
MedAssets, a Georgia firm, also has filed for an IPO.
“So far this year, $28.4 billion has been raised via M&A transactions and another $4.7 billion raised in public offerings,” said Canning. “This virtually guarantees that 2007 will be the largest year for venture-backed liquidity, both in terms of IPOs and M&As, in the U.S. since the dot-com boom.”
M&A targets included 37 software firms, 27 other information technology companies, 12 healthcare firms and 10 consumer/retail companies.
Health-are firm acquisitions produced a median valuation of $125 million, which was double that for the same quarter in 2006.
The $83 million median deal for IT companies was the highest since 2000.