Q3 MA Activity Sees Only Marginal Decline

While IPO activity has experienced a significant decline since last year ? just 13 offerings managed to get out of the gate in the third quarter compared to the 127 offerings that made it from the pipeline to the trading floor for the same period last year ? venture capitalists seeking viable exit strategies need not lament, because that drop-off has given way to a relatively healthy M&A market.

Seventy venture-backed M&A transactions were closed from July to September, according to third quarter figures released today by Venture Economics and the National Venture Capital Association. While the Q3 numbers are down a smidgen from the previous quarter ? a total of 78 M&A deals were completed in Q2 ? they?re still higher than in Q3 2000, which saw just 62 M&A deals.

The average per-deal valuation has come down quite a bit since last year, however. In Q3 2001, the average deal was valued at a meager $75.6 million, compared to $175 million per deal for the third quarter last year.

Still, the decrease didn?t seem to surprise the experts, given that valuations are down all around due to the flagging economy.

“With the IPO market all but shut down, sales by merger or acquisition are the way that VCs are exiting nowadays,” said Jesse Reyes, vice president with Venture Economics, in a prepared statement. “Valuations of all deals in the capital markets have been falling off, so it?s no surprise that the average value of M&A transactions have taken a nose dive as well.”

Who Did What

The life sciences sector saw the most activity throughout the quarter with six venture-backed medical/health-care companies being sold for $321 million. Compass Group Plc?s purchase of Crothall Services Group, a provider of outsourced services to heath-care institutions, for $170 million was one of the biggest deals of the quarter.

Three biotech companies also were acquired in Q3 for $227.5 million, versus $51 million for the same number of companies in the second quarter.

Although it accounted for the largest share of deal volume, the Internet-specific sector was quiet for the most part. None of its reported deals neared the $100 million mark, and its total deal volume was $540 million, an increase of only $127 million from the previous quarter.

Danielle Fugazy can be contacted at: Danielle.Fugazy@tfn.com

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