U.S. Venture-Backed Company IPOs in First Quarter Match 2009 Total; M&A Deal Activity Flat as Median Paid Picks Up

Dow Jones VentureSource: M&As and IPOs of VC-Backed Companies Net $4.7B in Q1; Time to Reach M&A Still Low as Investors Sell Companies Earlier

Apr 01, 2010, 07:00 ET from Dow Jones & Company

NEW YORK, April 1 /PRNewswire/ -- During the first three months of the year, eight U.S. venture-backed companies raised $711 million by going public on U.S. stock exchanges, matching the number of initial public offerings (IPOs) that occurred throughout 2009, according to Dow Jones VentureSource. Corporations bought 77 companies for $4 billion through mergers and acquisitions (M&As) during the first quarter, on par with the 77 deals that raised $3.4 billion during the same period last year.

"After two difficult, nearly dormant years for IPOs, venture-backed companies started 2010 with a strong showing in the public market," said Jessica Canning, global research director for Dow Jones VentureSource. "With investors looking to take advantage of the open IPO window and 44 U.S. venture-backed companies in IPO registration, 2010 will be an active year as long as the public markets continue showing interest in venture-backed offerings."

Scott Austin, editor of Dow Jones VentureWire said: "A steady exit environment is welcome after the last few years of economic turmoil, but exit levels are still far from where they need to be to sustain the industry. The hope is that the numbers posted during the first quarter are a foundation VCs can build on over the next year."  

M&A Deal Activity Flat, Median Paid Picks Up

According to VentureSource, 77 U.S.-based venture-backed companies raised $4 billion through a merger or acquisition during the most recent quarter. Deal activity was flat over the same period last year and was still a far cry from the 109 deals completed during the first quarter of 2008. The $27 million median amount paid for a venture-backed company in the most recent quarter is a 17% increase from the $23 million median paid during the same period in 2009.

The largest M&A deal of the quarter belonged to Menlo Park, Calif.-based Acclarent, a provider of medical devices for the ear, nose and throat, which was acquired by Ethicon, a subsidiary of Johnson & Johnson, for $785 million.

Public Market Shows Signs of Life

The first quarter of 2010 was the most active quarter for venture-backed company IPOs since the fourth quarter of 2007 when 26 companies went public, according to Dow Jones VentureSource. During the most recent quarter, eight companies raised $711 million through public offerings. Last year during the same period no venture-backed company went public.

The quarter's largest IPO belonged to Cambridge, Mass.-based Ironwood Pharmaceuticals, a drug developer, which raised $188 million.

Time to M&A Still Low as Investors Sell Companies Earlier

It took a median of 5.4 years for a venture-backed company to reach liquidity via a merger or acquisition. This is 15% more than the 4.7-year median in the first quarter of 2009, but still less than the medians seen during the same period in 2007 and 2008, 6.1 and 6.6 years respectively. Companies that exited during the first quarter raised a median of $19 million in venture capital before exiting through a merger or acquisition, a 19% increase from the $16 million median during the same period last year.

"We are seeing a trend toward quicker exits," said Ms. Canning. "Some venture investors have been building companies that can more quickly reach an exit while others have been under pressure to post returns or exit younger startups to dedicate their resources to later-stage companies."

It took companies that went public during the first quarter a median of 10.4 years and $156 million in venture capital to achieve liquidity. This is more than the median 7.9 years and $32 million in capital it took for companies to reach an IPO in 2009.

To download additional data, visit http://bit.ly/1Q10Liq. For information on Dow Jones VentureSource's research methodology, visit http://bit.ly/VSFAQs.

For more information, journalists can contact Kim Gagliardi at +1 603-864-8873 or kimberly.gagliardi@dowjones.com. For general information about Dow Jones VentureSource, visit http://venturecapital.dowjones.com.


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