Venture-Backed IPO Activity Weak In Q4 and Full Year; Acquisitions Market Carried 2005 Exits for Venture-Backed Companies

Jan 03, 2006, 00:00 ET from Thomson Venture Economics from ,National Venture Capital Association

    NEW YORK, Jan. 3 /PRNewswire-FirstCall/ -- Seventeen venture-backed
 companies raised $1.6 billion through initial public offerings (IPOs) and 78
 venture-backed acquisitions were reported in the fourth quarter of 2005,
 according to the Exit Poll report by Thomson Venture Economics and the
 National Venture Capital Association (NVCA).  The fourth quarter exit activity
 mirrored the full year 2005 which was characterized by a significantly weak
 IPO market propped up by a stronger acquisitions market.  For the full year
 2005, fifty-six venture-backed IPOs raised a total of $4.5 billion
 representing a 40% decline in volume from 2004 while the acquisitions market
 saw 330 transactions with a disclosed value of $14.4 billion, similar to the
 previous year.
           Venture-Backed Liquidity Events by Year/Quarter, 2000-2005
                                   Total                         Total  Average
                       M&A Deals    M&A     **Average            IPO      IPO
                 Total   with    Disclosed   M&A Deal            Offer   Offer
                 M&A   Disclosed   Value      Size    ***Number  Amount  Amount
     Quarter/   Deals   Values      ($M)      ($M)     of IPOs   ($M)     ($M)
     2000         317     203    68,492.1     338.4      264  25,499.4    96.6
     2001         353     165    16,798.9     101.8       41   3,489.9    85.1
     2002         316     151     7,874.4      52.1       24   2,473.5   103.1
     2003-1        69      21     1,453.3      69.2        1      77.2    77.2
     2003-2        75      27     1,841.9      68.2        2     164.0    82.0
     2003-3        78      41     2,127.7      51.9        9     732.8    81.4
     2003-4        71      34     2,303.2      67.7       17   1,048.7    61.7
     2003         293     123     7,726.1      62.8       29   2,022.7    69.7
     2004-1        80      45     3,921.0      87.1       13   2,721.1   209.3
     2004-2        89      48     4,514.6      94.1       29   2,077.8    71.6
     2004-3        86      46     4,140.1      90.0       24   3,225.6   134.4
     2004-4        84      46     2,862.2      62.2       27   2,990.4   110.8
     2004         339     185    15,437.9      83.4       93  11,014.9   118.4
     2005-1        80      45     4,209.9      93.6       10     720.7    72.1
     2005-2        76      32     3,691.0     115.3       10     714.1    71.5
     2005-3        96      46     4,094.8      89.0       19   1,458.1    76.7
     2005-4*       78      34      2368.8      69.7       17   1,568.1    92.2
     2005         330     157    14,364.4      91.5       56   4,461.0    79.7
     Thomson Venture Economics & National Venture Capital Association
     Data comprises transactions reported as closing as of 12/30/05
     *Q4 2005 M&A data is preliminary and subject to change
     **Only accounts for deals with disclosed values
     ***Includes all companies with at least one U.S. VC investor that trade on
        U.S. exchanges, regardless of domicile
     According to Mark Heesen, president of the NVCA, the venture capital exit
 market was characterized in 2005 by a lackluster IPO market, which can be
 attributed to a number of factors.
     "For the IPO market to improve, we need relief from certain hurdles
 associated with the Sarbanes Oxley Act, but we also need an investing public
 that is bullish on technology," said Heesen. "Investors have every reason to
 have confidence in the venture-backed companies in registration today.  Most
 have survived the boom and the bust, which speaks to the soundness of their
 business models and the strength of their discipline.  They have weathered
 significant difficulties and understand excess and how to avoid it. Once the
 market begins to accept these organizations and that is reflected in their
 share prices, emerging companies will consider the IPO path once again."
     IPO Activity Highlights
     The fourth quarter of 2005 was dominated by the Technology sector, which
 saw ten venture-backed IPOs raise $1.1 billion.  The Technology sector also
 contained the largest IPO of the fourth quarter and the year, with
 IntercontinentalExchange, Inc.'s $415.9 million offering.
 IntercontinentalExchange was backed by TA Associates and Goldman, Sachs & Co.
 The second largest IPO of the quarter, DealerTrack, Inc., was also from the
 Technology sector.  DealerTrack raised $170.0 million and was backed by J.P.
 Morgan Partners and GRP Partners.   The Life Sciences sector had five venture-
 backed IPOs raise a total of $191.2 million in the fourth quarter.  The
 largest Life Sciences IPOs in the quarter were NxStage Medical, Inc. and
 Somaxon Pharmaceuticals, Inc., which both raised $55.0 million.
     In 2005, the Technology sector saw 26 venture-backed companies raise a
 total of $2.6 billion, with the Internet Specific category leading the sector
 with ten IPOs raising $1.3 billion.  The Life Sciences sector saw 23 companies
 raise a total of $1.2 billion, while Non-high Technology had seven IPOs raise
 $727.6 million.  The two largest IPOs of 2005, IntercontinentalExchange, Inc.
 and OptionsXpress, Inc., were from the Technology sector.  The third largest
 venture-backed IPO of the year, Focus Media, came from the Non-high Technology
 sector.  As of December 30th, 33 of the 56 companies, or 59%, were trading at
 or above their offering price.
                             IPO Industry Breakdown
                                               Q4 2005         Full-Year 2005
                                          *Number             *Number
                                            of                  of
                                          Venture    Total    Venture   Total
                                          Backed    Venture   Backed   Venture
                                           IPO's    Backed     IPO's   Backed
                                          in the   Offering   in the  Offering
                    Industry               U.S.    Size ($M)   U.S.   Size ($M)
       Technology   Internet Specific        4      602.1       10    1,259.3
                    Semiconductors           3      240.5        7      570.1
                    Communications/Media     2      103.5        4      315.8
                    Computer Software        1      170.0        3      356.5
                    Computer Hardware       --         --        2       55.2
                    TOTAL                   10    1,116.1       26    2,556.9
     Life Sciences  Medical/Health           4      136.2       13      670.0
                    Biotechnology            1       55.0       10      506.4
                    TOTAL                    5      191.2       23    1,176.4
         Other      Non-high Technology      2      260.8        7      727.6
                    TOTAL                    2      260.8        7      727.6
     Thomson Venture Economics & National Venture Capital Association
     *Includes all companies with at least one U.S. VC investor that trade on
      U.S. exchanges, regardless of domicile
     There are currently only 16 companies 'in registration' with the
 Securities and Exchange Commission, meaning they have filed during 2005 and
 are currently preparing for their initial public offerings.  This compares
 with 57 venture-backed companies that were in registration at the end of 2004.
     Merger and Acquisition Highlights
     Venture-backed M&A activity remained strong for the second consecutive
 year, carrying forward the recovery from the post-bubble trough. Based on data
 collected as of December 30, 2005, the number of transactions for the year
 held steady at 330 compared to 339 in 2004.  The average disclosed deal value
 rose in 2005 to $91.5 million from $83.4 million in 2004.
     Daniel Benkert, senior analyst at Thomson Financial said, "We have entered
 a short-term period of stasis, where the mass of those bubble-era companies
 are finally reaching a level of maturity worthy of a profitable exit.
 Considering the uncertain state of the IPO option, the M&A market remains
 healthy and we are probably seeing that market coming to a plateau, but a
 reasonably sustainable and very rational one."
                             M&A Industry Breakdown
                             Q4 2005                     Full-Year 2005
     Industry     *Number    *Number     Total  *Number of  *Number of    Total
                of Venture  of Venture  Venture   Venture    Venture    Venture
                  Backed      Backed    Backed     Backed    Backed      Backed
                 M&A deals     M&A     Disclosed  M&A deals   M&A     Disclosed
                  in the   (disclosed)    Deal     in the  (disclosed)    Deal
                   U.S.       deals      Value      U.S.      deals      Value
                             in the       ($M)               in the       ($M)
                               U.S.                           U.S.
      Specific      20          9        452.0       76        36       3408.1
     Semiconductors  6          4        173.7       14         6        281.2
      Media          4          3         81.0       31        15       2316.8
      Software      24          7        675.7      109        50       3462.7
      Hardware       5          3         69.9       13         6        233.9
     TOTAL          59         26      1,452.2      243       113      9,702.6
     Life Sciences
      Health        11          5        682.5       46        25       3277.0
     Biotechnology   4          1        113.5       12         4        699.5
     TOTAL          15          6        796.0       58        29      3,976.5
      Technology     4          2        120.4       29        15        685.2
     TOTAL*         78         34      2,368.8      330       157     14,364.4
     *Q 4 2005 M&A numbers are preliminary and are subject to change
     The Software sector saw the most transactions in the fourth quarter at 24
 followed closely by the Internet-Specific sector at 20.  These sectors also
 hold the number one and two positions for the full year 2005 at 109 and 76
 deals respectively.  Life Sciences, which includes biotechnology and medical
 devices, saw 15 deals in the fourth quarter and 58 deals for the full year.
           Analysis of M&A Transaction Values versus Amount Invested
     Relationship between transaction
     value and investment                                  2004          2005
     Deals where transaction value is less
     than total venture investment                           62            48
     Deals where transaction value is 1-4x
     total venture investment                                61            58
     Deals where transaction value is 4x-
     10x total venture investment                            39            30
     Deals where transaction value is
     greater than 10x venture investment                     21            18
     Total Disclosed Deals                                  183           154
     Source: Thomson Venture Economics & National Venture Capital Association
             * In 2004, 185 deals had disclosed values, but two of these
               targets did not have disclosed total investment amount.
             ** In 2005, 157 deals had disclosed values, but three of these
                targets did not have a disclosed total investment amount.
     An analysis of the returns these acquisitions generated in transaction
 values shows a market with a strong degree of symmetry with regard to the
 level of success that can be expected using the M&A liquidity option. Both
 2004 and 2005 follow the same pattern, with roughly 1/3 of deals returning at
 least 4x or greater the investment, 1/3 returning 1x - 4x the investment , and
 1/3 bringing in less than the amount invested.
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 460 venture capital and private equity firms. NVCA's mission is to foster
 greater understanding of the importance of venture capital to the U.S.
 economy, and support entrepreneurial activity and innovation. According to a
 2004 Global Insight study, venture-backed companies accounted for 10.1 million
 jobs and $1.8 trillion in revenue in the United States in 2003. The NVCA
 represents the public policy interests of the venture capital community,
 strives to maintain high professional standards, provides reliable industry
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