Venture-backed company exit activity picked up just a bit in the second quarter, but remains at a historically slow pace.
The IPO market regained steam, and average disclosed M&A valuations rose in comparison to the previous quarter. However, 2009 is still shaping up as one of the weakest periods for venture returns in years, according to the Exit Poll report release last week by Thomson Reuters (publisher of PE Week) and the National Venture Capital Association.
In Q2, there were five venture-backed IPOs, the highest number since the first quarter of 2008. The tally of M&A exits as of the last day of the quarter was 59 totaling $2.6 billion, similar to the level of activity in the two prior quarters but considerably higher in average disclosed value.
“On a scale of 1 to 10, I’d say it was a four,” says Mark Heesen, NVCA president.
One positive indicator was that some well-established venture-backed companies were able to carry out IPOs, Heesen says. Another, he says, is that the quality of acquisitions improved for VCs in Q2.
However, there are only 10 VC-backed companies remaining in registration to price an IPO. Heesen says he’s concerned about, and he adds that the small number of registrants on deck does not bode well for a pickup in future IPO activity, despite LogMeIn becoming the first VC-backed company to go publci on the first day of Q3.
“Even if the market opens, it’s likely not to be very vibrant,” Heesen says. Another worry, he says, is that the lack of exits over the past year could pose a problem for venture funds seeking follow-on capital.
“They need to show LPs there’s a reason for investing in their particular firm,” he says.
A few managed to do that in the second quarter. Overall, there were five venture-backed IPOs valued at $720.7 million that made it out in that period, the highest number of offerings since the first quarter of 2008 (also five) and the highest dollar volume since the fourth quarter of 2007 ($3.0 billion).
Four of the five IPO exits for the quarter were in the information technology sector, accounting for $579.0 million. Within this sector, computer software and services companies garnered the most deals, with two, while the largest dollar volume was associated with the communications and media related-transaction worth $279.3 million. There was one non-high technology deal by a consumer related venture-backed company for $141.8 million.
As of June 30, 59 venture-backed M&A deals were reported for the first quarter, 13 of which had an aggregate deal value of $2.6 billion. The average disclosed deal value was $197.7 million, the highest level since the fourth quarter of 2007.
Only three acquisitions in the quarter were above that average deal value of $197.7 million.
The largest M&A transaction in the quarter was Medtronic’s $700 million purchase of surgical instrument maker CoreValve. The second largest deal was Cisco’s acquisition of Pure Digital Technologies Inc., maker of the Flip video camera, for $590 million in stock. The third-largest VC-backed M&A involved drug developer BiPar Sciences, which was bought by Sanofi-Aventis SA for $500 million.
The information technology sector led the venture-backed M&A landscape, with 46 deals and a disclosed total dollar value of $215.6 million. Within this sector, Internet specific and computer software and services companies accounted for the bulk of the targets, with 17 and 13 transactions, respectively, across these sector subsets.
Life sciences saw the next highest level of activity with seven deals and a combined disclosed value of $1.4 billion. Finally, non-high technology deals accounted for six exits with $990.0 million in disclosed values. —Joanna Glasner and Alastair Goldfisher