Yearend Surge in M&As of U.S. Venture Capital-Backed Companies Pushes 2009 Liquidity to $17.1 Billion; Sets Stage for Promising 2010

NEW YORK, Jan. 4 /PRNewswire/ -- The fourth quarter saw U.S. venture-backed companies begin reversing the trend that saw severely depressed liquidity levels through the first three quarters of 2009. While still sitting on the sidelines of the public markets, companies staged a comeback in the private markets where corporate acquirers snapped up 86 companies for a total $7.3 billion, according to industry tracker Dow Jones VentureSource. During the fourth quarter, three initial public offerings (IPOs) raised $220 million.

Throughout 2009 venture-backed companies generated $17.1 billion in liquidity, 34% less than the $26.1 billion produced in 2008. Forty-four percent of the year's total liquidity was generated in the fourth quarter.

"The fourth quarter has set the stage for an active year in M&As in 2010," said Jessica Canning, director of global research for Dow Jones VentureSource. "As the economy improves, acquirers are gaining confidence in their own financial situation and returning to strategic acquisitions. At the same time, the steady trickle of public offerings is teasing investors who expect the IPO window will re-open in the coming year."

M&A Market, Acquisition Prices Spike in Fourth Quarter

According to VentureSource, the $7.3 billion generated by mergers and acquisitions (M&As) in the fourth quarter of 2009 is a 49% increase from the $4.9 billion raised in the same period last year. Throughout 2009, 326 M&A transactions garnered $16.2 billion, a 37% drop from the $25.6 billion raised through 380 M&As in 2008.

For the first time since 2000, the median amount paid for a venture-backed company was more than $100 million. In the most recent quarter the median paid was $145 million, almost eight times more than the $19 million median paid during the same period last year. The $27 million median amount paid for a venture-backed company throughout 2009, however, was 18% less than the $33 million median in 2008.

"Several large deals spurred a dramatic increase in the median amount acquirers paid for a company during the fourth quarter," said Ms. Canning. "But the median amount paid throughout 2009 was still below the levels seen in 2007, a positive sign for acquirers looking to purchase companies at reasonable prices."

The largest M&A deal for both the quarter and the year belonged to Henderson, Nev.-based Zappos.com, an online shoe and clothing retailer, which was acquired by Amazon.com for $847 million.

IPOs Still Sparse

Eight companies completed public offerings in 2009, raising $904 million, a 64% increase from the $551 million generated through seven IPOs in 2008.

The year's largest IPO was the $371 million offering by Watertown, Mass.-based A123 Systems, a provider of rechargeable lithium ion battery systems, in late September. The fourth quarter's largest IPO was an $80 million offering by Chicago, Ill.-based Echo Global Logistics, a provider of transportation management solutions, in October.

"With 25 venture-backed companies currently in IPO registration, it is clear that many entrepreneurs and their investors expect the market to improve in the coming year," said Ms. Canning.

Less Time, Money Needed To Achieve Liquidity

In 2009, companies raised a median of $18 million in venture capital before achieving liquidity through a merger or acquisition. This is 18% less than the $22 million median seen in 2008. In addition, it took a median of 5 years for a venture-backed company to exit via a merger or acquisition - 17% less time than the 6-year median in 2008.

In terms of IPO companies, the median amount of venture capital raised prior to an IPO fell 22% from $55 million in 2008 to $43 million in 2009. The median amount of time it took a company to reach liquidity fell to 7.9 years after hitting a record 8.7 years in 2008.

About Dow Jones VentureSource's Research Methodology

The figures included in this release were collected by surveying professional venture capital firms, through in-depth interviews with portfolio company CEOs and CFOs, and from a number of secondary sources. These statistics represent equity investments into early-stage, innovative companies only and do not include companies receiving funding solely from corporate, individual, and/or government investors, or from buyout or other non-VC investment firms. For more information on our methodology, visit http://www.fis.dowjones.com/VS/VentureSourceFAQ.html.

For deeper analysis, download the complete report from Dow Jones VentureSource at www.fis.dowjones.com/VS/4QUSLiquidity.html. For general information about VentureSource, visit http://venturecapital.dowjones.com.

No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.

Copyright © 2010, Dow Jones VentureSource

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