Venture-Backed IPOs Inch Forward in Q2 2006; Acquisitions Remain Stable

Industry Association Still Wary About Health of US Public Markets

Jul 05, 2006, 01:00 ET from Thomson Financial from ,National Venture Capital Association

    NEW YORK, July 5 /PRNewswire-FirstCall/ -- Nineteen venture-backed
 companies raised $2.0 billion through initial public offerings (IPOs) on US
 exchanges in the second quarter of 2006, according to the Exit Poll report
 by Thomson Financial and the National Venture Capital Association (NVCA).
 This volume represents a 90 percent increase from the first quarter of 2006
 when ten venture-backed companies went public. It is also near double the
 volume from a year ago when ten companies went public during the same
 period. In addition, there were 86 venture-backed acquisitions with a
 disclosed value of $3.2 billion reported in the second quarter.
           Venture-Backed Liquidity Events by Year/Quarter, 2001-2006
                                       *Total   *Average                Average
                              M&A     Disclosed   M&A             Total   IPO
                    Total  Deals with    M&A      Deal  **Number  Offer  Offer
                     M&A   Disclosed    Value     Size     of    Amount  Amount
     Quarter/Year   Deals   Values      ($M)      ($M)    IPOs    ($M)    ($M)
     2001            353      165     16,798.9   101.8     41   3,489.9   85.1
     2002            318      151      7,916.4    52.1     24   2,473.5  103.1
     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           87       47      4,142.8    88.1     24   3,225.6  134.4
     2004-4           84       46      2,862.2    62.2     27   2,990.4  110.8
     2004            340      186     15,440.6    83.0     93  11,014.9  118.4
     2005-1           82       46      4,364.9    94.9     10     720.7   72.1
     2005-2           80       36      4,791.0   133.1     10     714.1   71.5
     2005-3           98       47      4,374.8    93.1     19   1,458.1   76.7
     2005-4           86       39      2,563.7    65.7     17   1,568.1   92.2
     2005            346      168     16,094.4    95.8     56   4,461.0   79.7
     2006-1          101       47      5,382.4   114.5     10     540.8   54.1
     2006-2           86       34      3,244.6    95.4     19   2,011.0  105.8
     2006            187       81      8,626.9   106.5     29   2,551.8   88.0
     Thomson Financial & National Venture Capital Association
     * 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.
     "The growth in IPO volume is encouraging, but we certainly are not out
 of the woods yet," said Mark Heesen, president of the NVCA. "We will need
 to see these levels continue to increase throughout the rest of the year to
 characterize the US public markets as available to venture-backed
 companies. These companies now have a multitude of exit and liquidity
 options - acquisitions, foreign exchanges, and buyout rounds. A US IPO is
 still not a viable option for many of these emerging enterprises. We not
 only need to see more companies going public, but more companies going
 public successfully if we expect others to follow suit."
     IPO Activity Overview
     The technology sector had eight companies raise a total of $1.4 billion
 in the second quarter. The largest IPO of the second quarter was the $531
 million offering from Vonage Holdings Corporation. The New Jersey-based
 provider of digital telephone service via the Internet priced 31.3 million
 shares at $17, the largest public offering of a venture-backed company
 since October 2004. Vonage was backed by New Enterprise Associates, Bain
 Capital, 3i, Meritech Capital Partners, and Institutional Venture Partners.
     The Life Sciences sector led the IPO activity by pricing nine venture-
 backed IPOs raising a total of $452.2 million in the second quarter. The
 largest IPO in the Life Sciences sector was the $106.5 million offering
 from Northstar Neurosciences, Inc., a Seattle, Washington-based medical
 device company backed by Mayfield Fund, Domain Associates, Canaan Partners,
 and AEA Investors.
     Along with the large jump in IPO volume, the venture-backed companies
 that went public during the second quarter were also the beneficiaries of
 increased offering sizes and post-offering values, both at their highest
 levels since the fourth quarter of 2004. For the rolling 12 month period
 ending June 30, 2006, 52% of the companies that went public are currently
 trading above their offering price.
     In addition to the IPOs completed this quarter, there are currently 41
 venture-backed companies "in registration" with the United States
 Securities and Exchange Commission. These companies have filed with the SEC
 in 2005 or 2006 and are now preparing for their initial public offerings.
 This compares favorably to the 24 companies in registration at the end of
 the first quarter of 2006.
     In addition to the 19 venture-backed companies that went public on US
 exchanges, three companies backed by US venture capitalists successfully went
 public on foreign exchanges, two on the London AIM and one on the London Stock
                               Industry Breakdown
                                                                     Q2 2006
                                                   *Number of         Total
                                                    Venture-         Venture-
                                                     Backed           Backed
                        Industry                    IPO's in         Offering
                                                    the U.S.         Size ($M)
                     Internet Specific                  3               742.3
                     Communications/Media               1               345.9
                     Computer Software                  3               222.1
                     Semiconductors                     1                49.5
        Technology   TOTAL                              8             1,359.8
                     Medical/Health                     6               329.8
        Life         Biotechnology                      3               122.4
        Sciences     TOTAL                              9               452.2
                     Non-high Technology                2               198.9
        Other        TOTAL                              2               198.9
                                         TOTAL         19             2,011.0
     Thomson Financial & National Venture Capital Association
     * Includes all companies with at least one U.S. VC investor that trade on
       U.S. exchanges, regardless of domicile
     Merger and Acquisition Overview
     Although down from first quarter volume, second quarter results were
 comparable with 2005 quarterly activity. The average disclosed deal size
 was $95.4 million, a slight decrease from first quarter's average, but in
 line with the average deal size for 2005. Median deal size remained strong
 in the first quarter, with a median disclosed value of $55.0 million. This
 compares to a median disclosed deal size of $67.5 million in the first
 quarter, and $31.0 million in the fourth quarter of 2005.
     The Technology sector continued to dominate the venture-backed M&A
 landscape, with 74 deals and a disclosed value of $2.6 billion. Within
 Technology, the Computer Software sector had 34 transactions, followed by
 the Internet Specific sector with 24 deals. Despite only six companies
 (four with disclosed values) acquired during the quarter in the
 Communications/Media sector, the sector lead all Technology sectors with
 $804.7 million in total disclosed deal value. Eight Life Sciences companies
 were acquired, with a disclosed deal value of $512.0 million.
     The largest disclosed deal of the quarter was the $431 million acquisition
 of assisted living facilities operator Hearthstone Assisted Living, Inc. by
 Nationwide Health Properties in June.  The second largest deal was the $420
 million acquisition of open source software developer JBOSS, Inc. by Red Hat,
                     Venture-Backed M&A Industry Breakdown
                                                         Q2 2006
                                                        Number of       Total
                                                         Venture-     Disclosed
                                            Number of     Backed       Venture-
                                            Venture-       M&A          Backed
                                             Backed     deals with       Deal
                                              M&A       a disclosed     Value
                         Industry            deals         value         ($M)
                    Communications/Media       6             4          804.7
                    Internet Specific         24             9          716.0
                    Computer Software         34            10          704.6
                    Semiconductors             6             2          306.9
                    Computer Hardware          4             1           72.0
     Technology     TOTAL                     74            26        2,604.2
                    Medical/Health             6             5          484.0
     Life           Biotechnology              2             2           28.0
     Sciences       TOTAL                      8             7          512.0
                    Non-high Technology        4             1          128.5
     Other          TOTAL                      4             1          128.5
                                     TOTAL    86            34        3,244.7
     Source: Thomson Financial & National Venture Capital Association
     Returns on total investments in the second quarter mirrored those of
 the first quarter. Deals bringing in the top returns, those with values
 greater that 4x the venture investment, accounted for 29% of the total.
 This compared to 33% last quarter. Conversely, those deals returning less
 than the amount invested accounted for 29% of the quarter's total, up from
 17% of the total last quarter.
             Analysis of Transaction Values versus Amount Invested
     Relationship between transaction value and
                     investment                            Q1 2006    Q2 2006
     Deals where transaction value is less than total
                   venture investment                         8          9
     Deals where transaction value is 1-4x total
                   venture investment                        23         13
     Deals where transaction value is 4x-10x total
                   venture investment                         7          5
     Deals where transaction value is greater than 10x
                   venture investment                         8          4
     Total Disclosed Deals                                   46**       31**
     Source: Thomson Financial & National Venture Capital Association
     ** Disclosed deals that did not have a disclosed total investment amount
        are not included.
     About Thomson Financial
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     The National Venture Capital Association (NVCA) represents
 approximately 480 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 data, sponsors professional development, and
 facilitates interaction among its members. For more information about the
 NVCA, please visit

SOURCE Thomson Financial; National Venture Capital Association