Venture-Backed Exit Activity Drops in 2011

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Dow Jones VentureSource: Fewer Deals Net More Capital as Median Price of M&A Spikes;

Companies Take Less Time, More Capital to Reach IPO

In 2011, fewer exits by U.S. venture-backed companies netted more capital as the median price paid for an acquisition and the median amount raised during an initial public offering (IPO) spiked. Throughout 2011, 522 mergers, acquisitions, buyouts and IPOs netted $53.2 billion, a 14% drop in deal activity and 26% increase in capital raised compared to 2010.

“Despite a slower acquisition pace capped with an uncharacteristic drop in deal activity in the fourth quarter, there are some positive signs heading into the new year. Acquisitions of companies liquidating their assets were halved in 2011 and companies are benefiting from lower start-up costs by taking capital farther toward a larger acquisition,” said Jessica Canning, global research director for Dow Jones VentureSource.

The median price paid for a company increased 77% to $71 million in 2011. To reach an M&A or buyout, companies raised a median of $17 million in venture financing, 12% less than in 2010, and took a median of 5.3 years to build their company, slightly less time than the 5.4-year median in 2010.

Companies Take Less Time, More Capital to Reach an IPO

Forty-five companies raised $5.4 billion through public offerings in 2011, significantly more capital than the $3.3 billion raised by 46 IPOs in 2010. The difference in capital raised can largely be attributed to two companies, Groupon and Zynga, which combined raised $1.7 billion through their IPOs.

“The IPO market saw some gains through the first half of the year, but the momentum was not strong enough to survive the volatility in August,” said Zoran Basich, editor of Dow Jones VentureWire. “During 2012 we’ll get a sense of whether the last two years of flat IPO activity is the new normal for the industry or if there’s room to grow.”

During the fourth quarter of 2011, 10 IPOs raised $2.4 billion. Currently, 60 U.S. venture-backed companies are in IPO registration. Thirteen of those companies filed during the fourth quarter.

The median amount of venture capital raised prior to an IPO rose 17% to $85 million in 2011. The median amount of time it took a company to reach liquidity fell to 6.5 years from 8.1 years in 2010.

Year-End Surge in M&As Absent

For the first time in five years, acquisition activity in the fourth quarter did not outpace the third quarter. During the fourth quarter, 103 M&As raised $9 billion, making it the least active quarter of the year. Throughout 2011, corporate acquirers bought 460 companies for $46.4 billion, a 13% drop in M&A activity and 30% increase in capital raised from 2010 when 528 deals netted $35.6 billion.

Buyouts of venture-backed companies by private equity firms also tracked below 2010. Private equity firms bought 17 venture-backed companies for $1.4 billion in 2011, down from the previous year when private equity firms bought 32 companies for $3.4 billion. During the fourth quarter, four buyouts netted $343 million.