Tuesday, October 2, 2012
VENTURE M&A AND IPO MARKET CONTINUE TO SLIP
Initial public offerings (IPO) and mergers and acquisitions (M&A) are both down for the third quarter as compared with the same quarter last year. The third quarter ended with 10 IPOs of U.S. venture-backed companies, the fewest since the fourth quarter of 2011. Mergers and acquisitions of venture-backed companies decreased by 46 deals to 99 in the third quarter, a 32% drop from the same period last year and reversing an upward trend seen over the first half of the year, according to Dow Jones VentureSource. Ten U.S. venture-backed companies raised $807 million through IPOs in the third quarter, one fewer than the 11 IPOs that raised $506 million in the same quarter last year. Currently, 36 U.S. venture-backed companies are in IPO registration. Eight of those companies registered in the third quarter. Start-ups based in California dominated exit markets, accounting for nearly half of venture M&As (47) in the third quarter and 60% of IPOs. “Investor caution continues to be evident in the public markets as demonstrated by the lackluster deal count,” said Brendan Hughes, Director of Information Analysis for VentureSource. “Companies that do manage to get out the door are taking longer and raising more money, with a median amount raised of $89.7 million and time to liquidity over 7 years.” Business Support Services Pick Up M&A Slack Business support services was the most active industry for M&As with 23 deals garnering $3.4 billion, an 8% decline in exits but a 56% increase in capital raised as compared to the same period last year. Microsoft Corp.’s acquisition of Yammer Inc. for $1.2 billion was the largest of the quarter and the second largest of the year. The largest IPO of the quarter was Palo Alto Networks Inc., which raised $197 million and listed on the New York Stock Exchange. Groupon Inc.’s acquisition of Savored Inc. increased its tally to eight venture-backed acquisitions for the year, the most by any corporate acquirer. IT M&As Fall, Driven by Software Segment The information technology (IT) industry saw the most dramatic drop in deal activity, as the number of acquisitions fell from 66 in the third quarter of 2011 to 28 in the most recent quarter. The drop was largely driven by the software segment which saw deals fall by exactly half, from 46 to 23. However, the IT industry led the quarter’s IPOs, with four companies going public. “While there have been some high-profile IPO disappointments among consumer-focused companies, enterprise-related offerings found success in recent months,” said Zoran Basich, editor of Dow Jones VentureWire. “Meanwhile, the slip in M&A activity shows that corporate acquirers are still proceeding cautiously amid a slow economic recovery.” During the third quarter, 99 mergers, acquisitions and buyouts raised $13 billion, a decrease of 32% and 12%, respectively, from the same period last year. The median price paid for a company fell to $60 million from $85 million in the third quarter of last year. To reach an M&A or buyout, it took companies a median of $16 million in venture financing, 6% less than in the third quarter of 2011, and a median of 5.3 years, less time than the 5.72 median a year earlier, to exit.