VC M&A Remains Flat in Q3

The venture-backed M&A market held steady during the third quarter, according to figures being released today by Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association.

Seventy-four venture-backed companies were either merged or acquired between July and September, which means that overall volume hasn’t changed much in the past year. During the second quarter, for example, 73 deals were closed.

But not everything was status quo. Exit-anxious venture capitalists experienced shrinking deal sizes in Q3, as venture-backed companies being merged or acquired during were valued at an average of just $52.58 million. This represents a 23% drop from an average deal size of $68.22 million during Q2 2003, and is off over 21% from the market’s Q3 2002 average.

It is important to note, however, that the average deal size data released today only includes “disclosed deals,” which generally account for just around half of the total deal flow. The largest disclosed deals of Q3 2003 were $225 million acquisitions of Kintana Inc. and Southern Assisted Living Inc.

Kintana was a Sunnyvale, Calif.-based provider of IT governance software that was acquired by Mercury Interactive Corp. (Nasdaq: MERQ) for $125 million in cash and another $100 million of Mercury stock. Kintana had raised over $50 million of venture funding, including a $12.5 million round in June 2001 at a post-money valuation of around $258 million. Company investors included Camelot Ventures, GraniteGlobalVentures and TA Associates.

Southern Assisted Living, a Chapel Hill, N.C.-based operator of assisted living facilities, was purchased by Health Care REIT Inc. The company had raised $45.2 million in venture funding from investors like Chartwell Capital Management, Kitty Hawk Capital, North Carolina Enterprise Fund, PNC Equity Management, Primus Venture Partners and Raymond James Capital.

The vast majority of venture-backed M&A deals in Q3 2003 came from the software sector, with telecommunications lagging behind as a distant second.

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