Venture-Backed M&A Volume Drops in 2002 –

Venture-backed merger and acquisition activity fell sharply in 2002, according to new data released by Venture Economics and the National Venture Capital Association. This mirrors a similar decline in the venture-backed IPO market, and helps explain why investors are having such a difficult time producing returns for limited partners.

Overall, just $7.16 billion was raised through 300 venture-backed M&A deals in 2002, which compares unfavorably to the $17.08 billion raised in 2001 and the $67.95 billion raised at the market’s 2000 peak. The only upside here – and it’s a relative one – is that the number of deals has not varied much in the past 36 months. This means that VCs are still cashing out of portfolio companies, but that there’s a lot less actual cash involved.

The largest venture-backed M&A deal of 2002 was Andrew Corp.’s acquisition of Celiant Corp. last June for $470.09 million. The Warren, N.J.-based provider of wireless power amplifiers for network systems operators had raised $50 million from Pequot Ventures back in 2001. Next up was the $355 million acquisition last January of Ocular Networks Inc. by Tellabs Inc. Ocular, a Reston Va.-based optical networking equipment provider, had raised just over $52 million from Bessemer Venture Partners, Columbia Capital, Comdisco Ventures, Globespan Capital Management (formerly JAFCO Ventures) and Highland Capital Partners. Rounding out the top three deals was MQ Associates Inc., a Norcross, Ga.-based outpatient diagnostic imaging provider that was purchased in August for $350 million by JPMorgan Partners. The company had previously received around $29 million in venture funding from TA Associates.

Overall, the software sector continued its traditional dominance with $1.79 billion raised though 106 venture-backed M&A deals. Telecom followed with $1.13 billion from 34 deals, and then came medical devices and equipment, with $912.25 million from 12 transactions. California-based companies were involved in the most deals for the highest volume (117 transactions raising $8.6 billion), with New England coming in second ($1.2 billion for 38 deals).