How Do Venture Capitalists Make Decisions?

In How Do Venture Capitalists Make Decisions? (NBER Working Paper No. 22587), Paul Gompers, William Gornall, Steven N. Kaplan, and Ilya A. Strebulaev report on the results of a survey of 885 institutional venture capitalists (VCs) conducted between November 2015 and March 2016. The survey asked detailed questions covering business practices. Most respondents were graduates of top MBA programs or Kauffman Fellows. Some were recruited from a list of individual members of the National Venture Capital Association and the VentureSource database. Eighty-two percent of respondents were partners in their firms.

The researchers found that deal flow, deal selection, and VC value-add are all important contributors to value creation. Among these, deal selection was considered the most important. VCs view the quality of the management team as more important than the business model, product, or market, both in selecting deals and in deal success. Managerial ability, industry experience, and passion were prized qualities for management team selection.

Respondents indicated that their firms discovered or sourced deals primarily through their networks. Over 30 percent of deals were generated through "professional networks," 30 percent were "proactively self-generated," 20 percent were referred by other investors, 8 percent came from a portfolio company. Only 10 percent came inbound from company management teams. The median firm considered 100 deals in a year for every deal it closed or invested in. Firms specializing in information technology considered 151 deals for each investment made; those specializing in health care considered only 78. Deals for early startups that generated an offer were more likely to close than those for later-stage companies with longer track records.

More than 90 percent of respondents considered a company's management team an important factor in the success or failure of their investments. Over 55 percent of respondents considered the team the most important factor. After they invested, venture capital firms offered services such as strategic guidance (87 percent), connections to investors (72 percent), connections to customers (69 percent), operational guidance (65 percent), hiring board members (58 percent), and hiring employees (46 percent). Respondents reported little flexibility about a number of dimensions of corporate structure, including liquidation preferences, vesting rules, antidilution protection, and board control.

—Linda Gorman

M&A at a Glance (November 2016) Paul, Weiss, Rifkind, Wharton & Garrison LLP

Canada, Netherlands, United Kingdom, USA November 15 2016

M&A volume in October 2016 increased to record levels, as measured by total dollar value, largely due to a spike in the number of megadeals, with eight October deals valued at or above $10 billion dollars. Total deal volume in the U.S. and globally rose in October 2016, by 163% to $341.10 billion and by 75.6% to $549.10 billion, respectively-the highest monthly deal volume totals since the inception of this publication in April 2012. Despite the increase in M&A volume, however, the number of deals continued to fall towards record-low territory, with U.S. deals falling by 8.5% to 668 and global deals by 10.4% to a twelve-month low of 2,567.

The surge in overall deal volume, as measured by dollar value, was driven primarily by strategic activity, although sponsor-related deal volume also rose. Strategic transactions accounted for a large portion of total deal volume, both in the U.S. and globally (91.2%, as compared to 79.1% over the last 12 months; and 87.3%, as compared to 81.3% over the last 12 months, respectively). Strategic deal volume increased in the U.S. by 176.8% to $311.31 billion and globally by 79.6% to $479.48 billion. The number of strategic deals declined in the U.S. by 10.2% to 536 and globally by 11.8% to 2,258. In sponsor-related activity, U.S. deal volume increased by 73% to $29.79 billion, and global deal volume increased by 52.2% to $69.62 billion. The number of sponsor-related deals in October 2016 remained near September levels, both in the U.S. and globally (132 and 309, respectively).

Crossborder activity followed a similar trend, with particularly strong results in the U.S. outbound market. Outbound U.S. deal volume increased by 208.7% to $61.31 billion, driven primarily by Qualcomm Incorporated's offer to acquire NXP Semiconductors N.V. for approximately $47.00 billion, and the number of deals increased by 10.9% to 112. Inbound U.S. deal volume increased by 44.4% to $98.53 billion, while the number of deals decreased by 16.2% to 114. Globally, crossborder deal volume rose by 52.2% to $205.95 billion and the number of deals decreased by 11.7% to 610, reaching a new 12-month low. Figure 1 and Annex Figures 5A-7A. The Netherlands claimed the lead for monthly outbound U.S activity by volume in October 2016 ($48.14 billion), while the U.K. maintained its 12-month lead ($72.22 billion). As for inbound activity, the U.K. overtook Canada as the leading country of origin in deal volume in October 2016 ($60.95 billion), while Canada maintained its 12-month lead ($120.01 billion).


Leisure and Recreation was the most active target industry by deal volume in the U.S. in October 2016 ($108.75 billion), boosted by AT&T Inc.'s $83.07 billion offer to acquire Time Warner Inc. Consumer Products was the second-most active target industry, driven by British American Tobacco Plc's $46.55 billion offer to acquire Reynolds American Inc. The AT&T offer and the British American Tobacco offer are two of the largest U.S. public mergers announced over the last 12 months. Figure 5. Computers & Electronics remained the most active target industry by number of deals for the month (168) and maintained its position as the most active target industry for the last 12 months, as measured by both volume ($274.19 billion) and number of deals (2,482).


With respect to U.S. public mergers, notwithstanding a spike in average deal value, both break and reverse break fees remained in line with historical levels.No transaction in October 2016 involving a strategic buyer had a go-shop provision.. In line with the rise of strategic transactions, the use of cash consideration in October 2016 was below its 12-month average (35.7%, as compared to 62.5%). Finally, the incidence of tender offers as a percentage of U.S. public mergers decreased to 7.1% (as compared to its 12-month average of 22.8%), again, possibly as a result of the prominence of strategic deals in October, which may not experience any timing or other advantages from using a two-step merger structure.

Berkery Noyes Software Industry M&A Report For First Quarter 2016

Berkery Noyes has released its Q1 2016 mergers and acquisitionstrend report for the Software Industry. The report analyzes M&A activity in the Software Industry during Q1 2016 and compares it with the past four quarters.
 

Transaction volume experienced a seven percent gain over the past three months, with a total of 523 deals in Q1 2016. Overall value fell 81 percent, from $111.5 billion to $21.6 billion. There were four transactions in Q4 2015 with a combined value of approximately $86 billion. This included Dell’s announced acquisition of EMC Corporation for $67.5 billion. If these four deals are excluded, value decreased 15 percent from Q4 2015 to Q1 2016. Aggregate value also declined nine percent on a year-over-year basis. The number of deals throughout the past five quarters reached its peak in Q3 2015, whereas value reached its zenith in Q4 2015.

Strategic acquirers completed eight of the top ten highest value software deals in Q1 2016. The industry’s largest transaction year-to-date was Cisco Systems’ acquisition of Jasper Technologies, an Internet of Things (IoT) service platform, for $1.4 billion. This followed Cisco’s IoT related acquisition of ParStream in Q3 2015. The Jasper acquisition was one of the highest value IoT deals ever completed in this nascent marketplace. In terms of active industry acquirers, Cisco completed two other software transactions in Q1 2016 with the announced acquisition of CliQr, a provider of application-defined cloud management solutions, for $260 million; and Synata, an enterprise cloud search engine.

Deal volume in the “Niche Software” segment, which is targeted to specific vertical markets, increased six percent in Q1 2016. Niche Software was the best represented segment in the top ten list of highest value transactions with eight deals. Three of these eight acquisitions occurred in the Healthcare vertical.

Along these lines were GI Partners’ announced acquisition of Netsmart Technologies, a provider of electronic health records, patient management, billing and other solutions for the health and human services sector, which is being acquired in a joint venture with Allscripts, for $950 million; ResMed’s announced acquisition of Brightree, a cloud-based software company that serves the post-acute care sector, for $800 million; and Wipro’s announced acquisition of HealthPlan Services, a technology and Business Process as a Service (BPaaS) provider that serves the U.S. health insurance sector, for $460 million.

Consumer Software M&A activity improved 22 percent in Q1 2016, the segment’s third consecutive quarterly rise. The Business Software segment, which consists of software designed for general business practices and not specific industry markets, saw an 18 percent increase in volume throughout the past three months.

Deal volume in the Infrastructure Software segment declined 21 percent in Q1 2016, which marked a return to its Q3 2015 level. The largest Infrastructure transaction during the quarter was Micro Focus’ announced acquisition of Serena Software, which specializes in application lifecycle management (ALM) software, for $540 million.

Other high value Infrastructure deals were Microsoft Corporation’s announced acquisition of Xamarin, which develops software solutions for mobile application development, with a reported purchase price between $400 and $500 million; and Oracle’s announced acquisition of Ravello, a provider of cloud-based virtualization software solutions, with a reported purchase price between $400 and $450 million. As for the cyber-security sector, notable deals included FireEye’s acquisitions of iSIGHT Partners for $200 million and Invotas International Corporation; and IBM with the acquisition of Resilient Systems.

Berkery Noyes Releases Software Industry M&A Report For First Quarter 2016

Monday, April 04, 2016

NEW YORK — April 4, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its Q1 2016 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during Q1 2016 and compares it with the past four quarters.
Transaction volume experienced a seven percent gain over the past three months, with a total of 523 deals in Q1 2016. Overall value fell 81 percent, from $111.5 billion to $21.6 billion. There were four transactions in Q4 2015 with a combined value of approximately $86 billion. This included Dell’s announced acquisition of EMC Corporation for $67.5 billion. If these four deals are excluded, value decreased 15 percent from Q4 2015 to Q1 2016. Aggregate value also declined nine percent on a year-over-year basis. The number of deals throughout the past five quarters reached its peak in Q3 2015, whereas value reached its zenith in Q4 2015.
Strategic acquirers completed eight of the top ten highest value software deals in Q1 2016. The industry’s largest transaction year-to-date was Cisco Systems’ acquisition of Jasper Technologies, an Internet of Things (IoT) service platform, for $1.4 billion. This followed Cisco’s IoT related acquisition of ParStream in Q3 2015. The Jasper acquisition was one of the highest value IoT deals ever completed in this nascent marketplace. In terms of active industry acquirers, Cisco completed two other software transactions in Q1 2016 with the announced acquisition of CliQr, a provider of application-defined cloud management solutions, for $260 million; and Synata, an enterprise cloud search engine.
Deal volume in the “Niche Software” segment, which is targeted to specific vertical markets, increased six percent in Q1 2016. Niche Software was the best represented segment in the top ten list of highest value transactions with eight deals. Three of these eight acquisitions occurred in the Healthcare vertical.
Along these lines were GI Partners’ announced acquisition of Netsmart Technologies, a provider of electronic health records, patient management, billing and other solutions for the health and human services sector, which is being acquired in a joint venture with Allscripts, for $950 million; ResMed’s announced acquisition of Brightree, a cloud-based software company that serves the post-acute care sector, for $800 million; and Wipro’s announced acquisition of HealthPlan Services, a technology and Business Process as a Service (BPaaS) provider that serves the U.S. health insurance sector, for $460 million.
Consumer Software M&A activity improved 22 percent in Q1 2016, the segment’s third consecutive quarterly rise. The Business Software segment, which consists of software designed for general business practices and not specific industry markets, saw an 18 percent increase in volume throughout the past three months.
Deal volume in the Infrastructure Software segment declined 21 percent in Q1 2016, which marked a return to its Q3 2015 level. The largest Infrastructure transaction during the quarter was Micro Focus’ announced acquisition of Serena Software, which specializes in application lifecycle management (ALM) software, for $540 million.
Other high value Infrastructure deals were Microsoft Corporation’s announced acquisition of Xamarin, which develops software solutions for mobile application development, with a reported purchase price between $400 and $500 million; and Oracle’s announced acquisition of Ravello, a provider of cloud-based virtualization software solutions, with a reported purchase price between $400 and $450 million. As for the cyber-security sector, notable deals included FireEye’s acquisitions of iSIGHT Partners for $200 million and Invotas International Corporation; and IBM with the acquisition of Resilient Systems.

- See more at: http://www.berkerynoyes.com/publication/pr/2016softwareQ1.aspx#sthash.WGLPIqiu.dpuf

Berkery Noyes Software Industry M&A Report For Full Year 2015

Berkery Noyes has released its full year 2015 mergers andacquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during 2015 and compares it with data covering 2013 and 2014.

Deal volume experienced a nine percent year-to-year increase, with a total of 2,028 transactions in 2015. Overall value gained 72 percent, from $123.74 billion to $213.20 billion. This rise was attributable in major part to Dell’s announced acquisition of EMC Corporation for $67.48 billion, which was the highest value deal ever recorded in the industry.

The EMC acquisition accounted for almost one-third of the industry’s aggregate value in 2015. If excluded, total value gained 18 percent on a yearly basis. With this transaction, Dell is looking to combine its server businesses with EMC’s storage and virtualization assets, enabling it to better compete beyond the PC market with a wider range of products. Also of note, Michael Dell and Silver Lake Partners took Dell private in 2013 for $24 billion.

In terms of valuations, the median revenue multiple declined from 2.7x to 2.4x, while the median EBITDA multiple improved from 12.0x to 13.8x. Deals in the $10-$20 million range over the past three years received a median enterprise value multiple of 2.3x revenue, whereas those above $160 million had a median enterprise value multiple of 3.6x revenue.

Financial sponsors were responsible for five of the industry’s top ten largest deals in 2015. Three of these five transactions occurred in the Infrastructure segment. This consisted of The Carlyle Group’s announced acquisition of Veritas Technologies Corporation, a storage and server management software solutions business, for $8 billion; Permira and CPP Investment Board’s acquisition of Informatica, a provider of enterprise data integration software and services, for $4.77 billion; and Thoma Bravo and Silver Lake Partners’ announced acquisition of SolarWinds, an IT management software and monitoring company, for $4.38 billion.

As for volume in the Infrastructure Software segment, deal activity improved 19 percent over the past year. Upon examination of the information security subsector, Blue Coat Systems was a notable acquirer in 2015 with Elastica, a cloud security startup, for $280 million; and Perspecsys, a cloud data protection platform. This followed Bain Capital’s acquisition of Blue Coat earlier in the year for $2.4 billion. With these acquisitions, Blue Coat is positioning itself as a leader in the cloud access security broker (CASB) space. Regarding high profile strategic Infrastructure deals, EMC acquired Virtustream, which offers cloud computing management software, for $1.2 billion prior to the Dell acquisition.

The Consumer Software segment underwent a 27 percent decrease in volume. This followed a 14 percent rise between 2013 and 2014. The largest Consumer deal during 2015 was the announced acquisition of Qihoo 360 Technology, an internet security company based in China, which was taken private by an investor consortium for $8.28 billion.

Transaction activity in the “Niche Software” segment, which is targeted to specific vertical markets, saw a 17 percent gain. Three of the industry’s top ten deals occurred in the Niche segment, including two related to the automobile market. Accordingly Vista Equity Partners acquired Solera Holdings, which provides risk management software to the automotive and property marketplace, for $6.25 billion; and Cox Automotive acquired Dealertrack Technologies, a web-based software solutions and services company for automotive retailers, for $4.36 billion.

Meanwhile, the number of deals in the Business Software segment, which consists of software designed for general business practices and not specific industry markets, increased 12 percent. The most active acquirer in the Business segment in 2015 was Microsoft with seven transactions.

“With the increased adoption of cloud and SaaS environments even software companies are recognizing the innate ability to integrate rather than develop everything," said James Berkery, Chief Information Officer at Berkery Noyes. "It stands to reason as more software solutions appear on the web that the proliferation of the API has begun to create an integration market unto itself. A sort of API marketplace with brokered solutions, tech enabled services and niche applications is poised to capitalize."

Berkery Noyes Media and Marketing Industry M&A Report For Full Year 2015

 
Berkery Noyes has released its full year 2015 mergers andacquisitions trend report for the Media and Marketing Industry. The report analyzes M&A activity in the Media and Marketing Industry during 2015 and compares it with data covering 2013 and 2014.
 

The firm’s research shows deal volume improved eight percent on a year-to-year basis. Aggregate value gained 12 percent, from $97.07 billion to $109.01 billion. In terms of valuations, the median revenue multiple moved slightly from 2.0x to 1.9x, while the median EBITDA multiple decreased from 11.0x to 8.7x. Deals in the $10-$20 million range over the last three years received a median enterprise value multiple of 1.5x revenue, whereas those above $160 million had a median enterprise value multiple of 2.8x revenue. The number of private equity backed transactions increased 13 percent during the past year, from 207 to 233.

The Internet Media segment underwent a 19 percent increase in deal activity. Online shopping giant Alibaba Group was a notable segment acquirer with the announced acquisition of Youku Tudou, a Chinese-based Internet television platform that enables users to search, view and share video content across multiple devices, for $3.37 billion. Alibaba, in which Yahoo! owns a 15 percent stake, also completed a related deal in 2014 when it acquired a 60 percent stake in ChinaVision Media Group, a television and film producer.

The Marketing segment experienced a six percent rise in volume. Of note, there were no Marketing acquisitions that made the industry’s top ten list of highest value deals during the year, as opposed to four in 2014. High profile segment transactions in 2015 included Dalian Wanda Group’s announced acquisition of Infront Sports & Media AG, an international sports marketing company that offers an array of services such as media rights distribution, brand development, and event sponsorship, for $1.2 billion; comScore’s announced acquisition of Rentrak Corporation, a cross-platform media measurement firm, for $827 million; and GTCR and Adams Outdoor Advertising’s announced acquisition of Fairway Outdoor Advertising, which operates about 20,000 bulletins, posters and digital billboards, for $575 million.

As for other areas covered in the report, the segment with the largest year-to-year rise in volume was Exhibitions, Conferences, and Events. This sector saw volume increase 33 percent, from 85 to 113 acquisitions. The most active related acquirer in 2015, either directly or through an affiliated business, was Providence Equity Partners with six transactions.

M&A activity in the Entertainment segment, after rising six percent during 2014, remained constant over the past year. Regarding value, the segment’s largest transaction in 2015 was Activision Blizzard’s acquisition of King Digital Entertainment, creator of the well-known mobile game Candy Crush Saga, for $5.9 billion.

Deal flow within the B2B Publishing and Information segment improved 11 percent on a yearly basis. In addition, the B2B segment had the industry’s largest rise in value, more than doubling from $9.38 billion to $23.01 billion. This gain was due in part to Intercontinental Exchange’s acquisition of Interactive Data Corporation, a provider of financial market data and analytics, for $7.45 billion. Other notable segment deals included Verisk Analytics’ acquisition of Wood Mackenzie, a data analytics and research firm focused on the oil, gas and mining market, for $2.79 billion; McGraw Hill Financial’s acquisition of SNL Financial, a news, data, and analysis provider, for $2.23 billion; and Equifax’s announced acquisition of Veda, a consumer and commercial credit reporting company, for $1.86 billion.

In terms of the Consumer Publishing segment, volume declined five percent in 2015. The largest Consumer Publishing transaction during the year was Japanese media group Nikkei’s announced acquisition of The Financial Times from Pearson for $1.3 billion. Previously mentioned Alibaba also completed a deal in the segment with the acquisition of South China Morning Post, an English language daily newspaper in Hong Kong. Jack Ma of Alibaba is now one of several Internet and tech leaders who have made notable recent investments in the Consumer Publishing space, following others such as Amazon’s Jeff Bezos with the acquisition of The Washington Post for $250 million in 2013. 

Meanwhile, the most active Consumer Publishing acquirer in 2015 was Adams Publishing Group. The family-owned media company, which owns community newspapers, specialty magazines, radio stations, and other products in its portfolio, completed five deals.

“There has been a steady uptick in media mergers and acquisitions activity, with more deals on the horizon and a positive outlook going forward,” said Vineet Asthana, Managing Director at Berkery Noyes. “Companies with a balance of revenue streams, some recurring revenue and more subscription type products in the mix are especially attractive to acquirers.”

Berkery Noyes Releases Media and Marketing Industry M&A Report For Full Year 2015

Wednesday, January 06, 2016

NEW YORK — January 6, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2015 mergers and acquisitions trend report for the Media and Marketing Industry. The report analyzes M&A activity in the Media and Marketing Industry during 2015 and compares it with data covering 2013 and 2014.
The firm’s research shows deal volume improved eight percent on a year-to-year basis. Aggregate value gained 12 percent, from $97.07 billion to $109.01 billion. In terms of valuations, the median revenue multiple moved slightly from 2.0x to 1.9x, while the median EBITDA multiple decreased from 11.0x to 8.7x. Deals in the $10-$20 million range over the last three years received a median enterprise value multiple of 1.5x revenue, whereas those above $160 million had a median enterprise value multiple of 2.8x revenue. The number of private equity backed transactions increased 13 percent during the past year, from 207 to 233.
The Internet Media segment underwent a 19 percent increase in deal activity. Online shopping giant Alibaba Group was a notable segment acquirer with the announced acquisition of Youku Tudou, a Chinese-based Internet television platform that enables users to search, view and share video content across multiple devices, for $3.37 billion. Alibaba, in which Yahoo! owns a 15 percent stake, also completed a related deal in 2014 when it acquired a 60 percent stake in ChinaVision Media Group, a television and film producer.
The Marketing segment experienced a six percent rise in volume. Of note, there were no Marketing acquisitions that made the industry’s top ten list of highest value deals during the year, as opposed to four in 2014. High profile segment transactions in 2015 included Dalian Wanda Group’s announced acquisition of Infront Sports & Media AG, an international sports marketing company that offers an array of services such as media rights distribution, brand development, and event sponsorship, for $1.2 billion; comScore’s announced acquisition of Rentrak Corporation, a cross-platform media measurement firm, for $827 million; and GTCR and Adams Outdoor Advertising’s announced acquisition of Fairway Outdoor Advertising, which operates about 20,000 bulletins, posters and digital billboards, for $575 million.
As for other areas covered in the report, the segment with the largest year-to-year rise in volume was Exhibitions, Conferences, and Events. This sector saw volume increase 33 percent, from 85 to 113 acquisitions. The most active related acquirer in 2015, either directly or through an affiliated business, was Providence Equity Partners with six transactions.
M&A activity in the Entertainment segment, after rising six percent during 2014, remained constant over the past year. Regarding value, the segment’s largest transaction in 2015 was Activision Blizzard’s acquisition of King Digital Entertainment, creator of the well-known mobile game Candy Crush Saga, for $5.9 billion.
Deal flow within the B2B Publishing and Information segment improved 11 percent on a yearly basis. In addition, the B2B segment had the industry’s largest rise in value, more than doubling from $9.38 billion to $23.01 billion. This gain was due in part to Intercontinental Exchange’s acquisition of Interactive Data Corporation, a provider of financial market data and analytics, for $7.45 billion. Other notable segment deals included Verisk Analytics’ acquisition of Wood Mackenzie, a data analytics and research firm focused on the oil, gas and mining market, for $2.79 billion; McGraw Hill Financial’s acquisition of SNL Financial, a news, data, and analysis provider, for $2.23 billion; and Equifax’s announced acquisition of Veda, a consumer and commercial credit reporting company, for $1.86 billion.
In terms of the Consumer Publishing segment, volume declined five percent in 2015. The largest Consumer Publishing transaction during the year was Japanese media group Nikkei’s announced acquisition of The Financial Times from Pearson for $1.3 billion. Previously mentioned Alibaba also completed a deal in the segment with the acquisition of South China Morning Post, an English language daily newspaper in Hong Kong. Jack Ma of Alibaba is now one of several Internet and tech leaders who have made notable recent investments in the Consumer Publishing space, following others such as Amazon’s Jeff Bezos with the acquisition of The Washington Post for $250 million in 2013. Meanwhile, the most active Consumer Publishing acquirer in 2015 was Adams Publishing Group. The family-owned media company, which owns community newspapers, specialty magazines, radio stations, and other products in its portfolio, completed five deals.
“There has been a steady uptick in media mergers and acquisitions activity, with more deals on the horizon and a positive outlook going forward,” said Vineet Asthana, Managing Director at Berkery Noyes. “Companies with a balance of revenue streams, some recurring revenue and more subscription type products in the mix are especially attractive to acquirers.”

- See more at: http://www.berkerynoyes.com/publication/pr/2015FY/Media.aspx#sthash.L9AXv7wL.dpuf

Berkery Noyes Releases Healthcare/Pharma Information and Technology Industry M&A Report For Full Year 2015

Berkery Noyes, an independent mid-market investment bank, has released its full year 2015 mergers and acquisitions trend report for the Healthcare/Pharma Information and Technology Industry.

The report analyzes merger and acquisition activity for the industry during 2015 and compares it with data covering 2013 and 2014. This market includes information, technology, and digital companies servicing the pharmaceutical, healthcare payer, and healthcare provider spaces.

Total transaction volume increased 15 percent on a year-to-year basis. Aggregate value gained four percent, from $16.44 billion to $17.08 billion. Regarding valuations, the median revenue multiple improved from 2.4x to 2.7x, while the median EBITDA multiple remained nearly constant at 13.8x. As for strategic acquirers, the number of deals rose 24 percent, from 281 to 348.

The most active acquirer in 2015, either directly or through an affiliated business, was eHealth company CompuGroup Medical AG with seven deals. Meanwhile, the most active strategic U.S. based acquirer in 2015 was Roper Technologies with five transactions. Of Roper’s deals, the largest was the announced acquisition of CliniSys Group, a supplier of laboratory information management systems, through Sunquest Information Systems for $261 million.

The industry’s most acquisitive financial sponsor in 2015 was New Mountain Capital with five deals. In terms of value, two of the top ten largest transactions during the year were backed by private equity firms. This included Pamplona Capital Management’s announced acquisition of MedAssets, a healthcare performance improvement company, for $2.77 billion, which was also the industry’s highest value deal in 2015. Pamplona is combining MedAssets’ revenue cycle management (RCM) business with Precyse, a health information management company that it acquired earlier in the year. In addition, Pamplona is divesting MedAssets’ spend and clinical resource management business to VHA-UHC Alliance NewCo. VHA, a national healthcare network, and UHC, an alliance of not-for-profit academic medical centers, were combined in 2015 following a merger.

The other financially sponsored deal that made the top ten list was Emdeon’s acquisition of Altegra Health, which offers technology-enabled payment solutions for health plans and healthcare providers, for $910 million. Emdeon is a portfolio company of Blackstone and Hellman & Friedman.

Deal volume in the Healthcare IT segment improved 21 percent in 2015. The Healthcare IT segment accounted for almost half of the industry’s aggregate volume, and strategic acquirers comprised 82 percent of the Healthcare IT volume.

Notable Healthcare IT transactions in the top ten list included IBM Watson Health’s acquisition of Merge Healthcare Incorporated, a provider of medical image handling and processing, interoperability and clinical systems, for $1.03 billion; and Cardinal Health’s acquisition of Navihealth, a post-acute care software company that helps physicians manage bundled payments, for $290 million.

Other high profile Healthcare IT deals outside the top ten were Computer Programs and Systems’ acquisition of Healthland, a provider of integrated technology solutions to rural community and critical access hospitals, for $250 million; Quality Systems’ acquisition of HealthFusion, a developer of web-based, cloud computing software for physicians, hospitals and medical billing services, for $165 million; and Roper Industries’ acquisition of Strata Decision Technology, a cloud-based financial analytics and performance platform that is used by healthcare providers, for $140 million.

Upon examination of other markets covered in the report, the segment with the largest yearly rise in volume was Medical Education, which more than doubled from 18 to 39 transactions. The Healthcare Business Services segment experienced a 19 percent increase, from 81 to 96 deals. M&A activity in the combined Pharma segments declined 17 percent, from 52 to 43 acquisitions.

“For all the recent talk of increased deal flow, there still remains a lack of high-quality opportunities of scale in the market today,” said Tom O’Connor, Managing Director at Berkery Noyes. “However, once an attractive opportunity of scale comes out there is no lack of buyers at robust prices. The credit environment is still favorable for attractive deals of scale, particularly those where a high percentage of revenue is recurring.” O’Connor added, “Companies of scale with rapid revenue growth are perfect bolt-ons for strategic buyers, and many of the large private equity groups have come down market looking for new platforms to buy and build.”

According to Jonathan Krieger, Managing Director at Berkery Noyes, "Strategics continue to acquire businesses to build out their product portfolio and broaden their customer footprint. Healthcare constituents continue to seek niche software vendors that promote interoperability, structure clinical data, improve outcomes and reduce costs."

  

Berkery Noyes, an independent mid-market investment bank, has released its full year 2015 mergers andacquisitions trend report for the Information Industry.
 

The Information report features companies in the Media & Marketing, Software, and Online & Mobile Industries. It analyzes M&A activity during 2015 and compares it with data covering 2013 and 2014.

According to Berkery Noyes’ latest research there was a nine percent increase in deal volume. Total value in the Information Industry gained 49 percent on a year-to-year basis, from $230.81 billion to $342.78 billion. This rise in value was attributable in large part to Dell’s announced acquisition of EMC Corporation for $67.48 billion, which was the highest value deal ever recorded in the industry. The EMC deal accounted for about one-fifth percent of the Information Industry’s aggregate value during the year. Without this transaction, overall value rose 19 percent.

The industry’s median revenue multiple declined from 2.3x in 2014 to 2.1x in 2015, while the median EBITDA multiple decreased from 11.5x to 10.7x. Deals in the $10-$20 million range over the past three years received a median enterprise value multiple of 2.1x revenue, whereas those above $160 million had a median enterprise value multiple of 3.3x revenue.

One notable trend in 2015 was non-tech companies looking to acquire information and tech businesses. Examples with deal values above $1 billion were car manufacturers BMW Group, Audi Group, and Mercedes-Benz with the acquisition of HERE, a digital mapping and location intelligence business, for $3.1 billion; and defense contractor Raytheon with the acquisition of Websense, a cyber-security firm, for $1.9 billion.

Meanwhile, transactions highlighting this trend with deal values below $1 billion included audio and infotainment manufacturer Harmon International, which serves several markets such as the automotive sector, with the acquisition of Symphony Teleca, a software engineering and integration service, for $548 million and Red Bend Software, a provider of software management for connected devices, for $170 million; and aircraft manufacturer Boeing with the acquisition of Peters Software, a provider of aviation training content for commercial and private pilots, as well as 2d3 Sensing, an imagery software company that processes critical intelligence and surveillance data.

Regarding the three horizontal markets in the report, volume in the Media & Marketing portion of the Information Industry improved eight percent over the past year. Transaction value in the horizontal’s B2B Publishing and Information segment more than doubled, from $9.38 billion to $23.01 billion. B2B was also the best represented Media segment with five of the top ten highest value deals in the horizontal.

As for the Software horizontal, deal activity rose nine percent in 2015. This included a 19 percent gain in the Infrastructure segment. In terms of specific buyers, the most active Infrastructure acquirer during the year was IBM with six transactions. This consisted of Gravitant, a developer of hybrid cloud brokerage software; CleverSafe, a data storage technology company; StrongLoop, a software provider that enables developers to build APIs that connect applications and devices; Appcore, a cloud automation management platform; Blue Box Group, a managed private cloud provider built on OpenStack; and AlchemyAPI, a cognitive computing company that will integrate with IBM’s Watson platform.

The Online & Mobile horizontal market saw volume increase 12 percent between 2014 and 2015. The number of deals in the E-Commerce segment gained 16 percent. In terms of value, the largest E-Commerce acquirer in 2015 was online travel company Expedia with a combined total of $4.94 billion paid in transaction value. This consisted of HomeAway, an online marketplace for the vacation rental industry, for $3.24 billion; as well as Orbitz Worldwide for $1.42 billion and Travelocity.com for $280 million.

Berkery Noyes Releases Information Industry M&A Report For Full Year 2015

Wednesday, January 13, 2016

NEW YORK — January 13, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2015 mergers and acquisitions trend report for the Information Industry.
The Information report features companies in the Media & Marketing, Software, and Online & Mobile Industries. It analyzes M&A activity during 2015 and compares it with data covering 2013 and 2014.
According to Berkery Noyes’ latest research there was a nine percent increase in deal volume. Total value in the Information Industry gained 49 percent on a year-to-year basis, from $230.81 billion to $342.78 billion. This rise in value was attributable in large part to Dell’s announced acquisition of EMC Corporation for $67.48 billion, which was the highest value deal ever recorded in the industry. The EMC deal accounted for about one-fifth percent of the Information Industry’s aggregate value during the year. Without this transaction, overall value rose 19 percent.
The industry’s median revenue multiple declined from 2.3x in 2014 to 2.1x in 2015, while the median EBITDA multiple decreased from 11.5x to 10.7x. Deals in the $10-$20 million range over the past three years received a median enterprise value multiple of 2.1x revenue, whereas those above $160 million had a median enterprise value multiple of 3.3x revenue.
One notable trend in 2015 was non-tech companies looking to acquire information and tech businesses. Examples with deal values above $1 billion were car manufacturers BMW Group, Audi Group, and Mercedes-Benz with the acquisition of HERE, a digital mapping and location intelligence business, for $3.1 billion; and defense contractor Raytheon with the acquisition of Websense, a cyber-security firm, for $1.9 billion.
Meanwhile, transactions highlighting this trend with deal values below $1 billion included audio and infotainment manufacturer Harmon International, which serves several markets such as the automotive sector, with the acquisition of Symphony Teleca, a software engineering and integration service, for $548 million and Red Bend Software, a provider of software management for connected devices, for $170 million; and aircraft manufacturer Boeing with the acquisition of Peters Software, a provider of aviation training content for commercial and private pilots, as well as 2d3 Sensing, an imagery software company that processes critical intelligence and surveillance data.
Regarding the three horizontal markets in the report, volume in the Media & Marketing portion of the Information Industry improved eight percent over the past year. Transaction value in the horizontal’s B2B Publishing and Information segment more than doubled, from $9.38 billion to $23.01 billion. B2B was also the best represented Media segment with five of the top ten highest value deals in the horizontal.
As for the Software horizontal, deal activity rose nine percent in 2015. This included a 19 percent gain in the Infrastructure segment. In terms of specific buyers, the most active Infrastructure acquirer during the year was IBM with six transactions. This consisted of Gravitant, a developer of hybrid cloud brokerage software; CleverSafe, a data storage technology company; StrongLoop, a software provider that enables developers to build APIs that connect applications and devices; Appcore, a cloud automation management platform; Blue Box Group, a managed private cloud provider built on OpenStack; and AlchemyAPI, a cognitive computing company that will integrate with IBM’s Watson platform.
The Online & Mobile horizontal market saw volume increase 12 percent between 2014 and 2015. The number of deals in the E-Commerce segment gained 16 percent. In terms of value, the largest E-Commerce acquirer in 2015 was online travel company Expedia with a combined total of $4.94 billion paid in transaction value. This consisted of HomeAway, an online marketplace for the vacation rental industry, for $3.24 billion; as well as Orbitz Worldwide for $1.42 billion and Travelocity.com for $280 million.

- See more at: http://www.berkerynoyes.com/publication/pr/2015FY/info.aspx#sthash.lTJwD25U.dpuf

Berkery Noyes Releases Information Industry M&A Report For Full Year 2015

Wednesday, January 13, 2016

NEW YORK — January 13, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2015 mergers and acquisitions trend report for the Information Industry.
The Information report features companies in the Media & Marketing, Software, and Online & Mobile Industries. It analyzes M&A activity during 2015 and compares it with data covering 2013 and 2014.
According to Berkery Noyes’ latest research there was a nine percent increase in deal volume. Total value in the Information Industry gained 49 percent on a year-to-year basis, from $230.81 billion to $342.78 billion. This rise in value was attributable in large part to Dell’s announced acquisition of EMC Corporation for $67.48 billion, which was the highest value deal ever recorded in the industry. The EMC deal accounted for about one-fifth percent of the Information Industry’s aggregate value during the year. Without this transaction, overall value rose 19 percent.
The industry’s median revenue multiple declined from 2.3x in 2014 to 2.1x in 2015, while the median EBITDA multiple decreased from 11.5x to 10.7x. Deals in the $10-$20 million range over the past three years received a median enterprise value multiple of 2.1x revenue, whereas those above $160 million had a median enterprise value multiple of 3.3x revenue.
One notable trend in 2015 was non-tech companies looking to acquire information and tech businesses. Examples with deal values above $1 billion were car manufacturers BMW Group, Audi Group, and Mercedes-Benz with the acquisition of HERE, a digital mapping and location intelligence business, for $3.1 billion; and defense contractor Raytheon with the acquisition of Websense, a cyber-security firm, for $1.9 billion.
Meanwhile, transactions highlighting this trend with deal values below $1 billion included audio and infotainment manufacturer Harmon International, which serves several markets such as the automotive sector, with the acquisition of Symphony Teleca, a software engineering and integration service, for $548 million and Red Bend Software, a provider of software management for connected devices, for $170 million; and aircraft manufacturer Boeing with the acquisition of Peters Software, a provider of aviation training content for commercial and private pilots, as well as 2d3 Sensing, an imagery software company that processes critical intelligence and surveillance data.
Regarding the three horizontal markets in the report, volume in the Media & Marketing portion of the Information Industry improved eight percent over the past year. Transaction value in the horizontal’s B2B Publishing and Information segment more than doubled, from $9.38 billion to $23.01 billion. B2B was also the best represented Media segment with five of the top ten highest value deals in the horizontal.
As for the Software horizontal, deal activity rose nine percent in 2015. This included a 19 percent gain in the Infrastructure segment. In terms of specific buyers, the most active Infrastructure acquirer during the year was IBM with six transactions. This consisted of Gravitant, a developer of hybrid cloud brokerage software; CleverSafe, a data storage technology company; StrongLoop, a software provider that enables developers to build APIs that connect applications and devices; Appcore, a cloud automation management platform; Blue Box Group, a managed private cloud provider built on OpenStack; and AlchemyAPI, a cognitive computing company that will integrate with IBM’s Watson platform.
The Online & Mobile horizontal market saw volume increase 12 percent between 2014 and 2015. The number of deals in the E-Commerce segment gained 16 percent. In terms of value, the largest E-Commerce acquirer in 2015 was online travel company Expedia with a combined total of $4.94 billion paid in transaction value. This consisted of HomeAway, an online marketplace for the vacation rental industry, for $3.24 billion; as well as Orbitz Worldwide for $1.42 billion and Travelocity.com for $280 million.

- See more at: http://www.berkerynoyes.com/publication/pr/2015FY/info.aspx#sthash.lTJwD25U.dpuf

Berkery Noyes Releases Information Industry M&A Report For Full Year 2015

Wednesday, January 13, 2016

NEW YORK — January 13, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2015 mergers and acquisitions trend report for the Information Industry.
The Information report features companies in the Media & Marketing, Software, and Online & Mobile Industries. It analyzes M&A activity during 2015 and compares it with data covering 2013 and 2014.
According to Berkery Noyes’ latest research there was a nine percent increase in deal volume. Total value in the Information Industry gained 49 percent on a year-to-year basis, from $230.81 billion to $342.78 billion. This rise in value was attributable in large part to Dell’s announced acquisition of EMC Corporation for $67.48 billion, which was the highest value deal ever recorded in the industry. The EMC deal accounted for about one-fifth percent of the Information Industry’s aggregate value during the year. Without this transaction, overall value rose 19 percent.
The industry’s median revenue multiple declined from 2.3x in 2014 to 2.1x in 2015, while the median EBITDA multiple decreased from 11.5x to 10.7x. Deals in the $10-$20 million range over the past three years received a median enterprise value multiple of 2.1x revenue, whereas those above $160 million had a median enterprise value multiple of 3.3x revenue.
One notable trend in 2015 was non-tech companies looking to acquire information and tech businesses. Examples with deal values above $1 billion were car manufacturers BMW Group, Audi Group, and Mercedes-Benz with the acquisition of HERE, a digital mapping and location intelligence business, for $3.1 billion; and defense contractor Raytheon with the acquisition of Websense, a cyber-security firm, for $1.9 billion.
Meanwhile, transactions highlighting this trend with deal values below $1 billion included audio and infotainment manufacturer Harmon International, which serves several markets such as the automotive sector, with the acquisition of Symphony Teleca, a software engineering and integration service, for $548 million and Red Bend Software, a provider of software management for connected devices, for $170 million; and aircraft manufacturer Boeing with the acquisition of Peters Software, a provider of aviation training content for commercial and private pilots, as well as 2d3 Sensing, an imagery software company that processes critical intelligence and surveillance data.
Regarding the three horizontal markets in the report, volume in the Media & Marketing portion of the Information Industry improved eight percent over the past year. Transaction value in the horizontal’s B2B Publishing and Information segment more than doubled, from $9.38 billion to $23.01 billion. B2B was also the best represented Media segment with five of the top ten highest value deals in the horizontal.
As for the Software horizontal, deal activity rose nine percent in 2015. This included a 19 percent gain in the Infrastructure segment. In terms of specific buyers, the most active Infrastructure acquirer during the year was IBM with six transactions. This consisted of Gravitant, a developer of hybrid cloud brokerage software; CleverSafe, a data storage technology company; StrongLoop, a software provider that enables developers to build APIs that connect applications and devices; Appcore, a cloud automation management platform; Blue Box Group, a managed private cloud provider built on OpenStack; and AlchemyAPI, a cognitive computing company that will integrate with IBM’s Watson platform.
The Online & Mobile horizontal market saw volume increase 12 percent between 2014 and 2015. The number of deals in the E-Commerce segment gained 16 percent. In terms of value, the largest E-Commerce acquirer in 2015 was online travel company Expedia with a combined total of $4.94 billion paid in transaction value. This consisted of HomeAway, an online marketplace for the vacation rental industry, for $3.24 billion; as well as Orbitz Worldwide for $1.42 billion and Travelocity.com for $280 million.

- See more at: http://www.berkerynoyes.com/publication/pr/2015FY/info.aspx#sthash.lTJwD25U.dpuf

Berkery Noyes Releases Information Industry M&A Report For Full Year 2015

Wednesday, January 13, 2016

NEW YORK — January 13, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2015 mergers and acquisitions trend report for the Information Industry.
The Information report features companies in the Media & Marketing, Software, and Online & Mobile Industries. It analyzes M&A activity during 2015 and compares it with data covering 2013 and 2014.
According to Berkery Noyes’ latest research there was a nine percent increase in deal volume. Total value in the Information Industry gained 49 percent on a year-to-year basis, from $230.81 billion to $342.78 billion. This rise in value was attributable in large part to Dell’s announced acquisition of EMC Corporation for $67.48 billion, which was the highest value deal ever recorded in the industry. The EMC deal accounted for about one-fifth percent of the Information Industry’s aggregate value during the year. Without this transaction, overall value rose 19 percent.
The industry’s median revenue multiple declined from 2.3x in 2014 to 2.1x in 2015, while the median EBITDA multiple decreased from 11.5x to 10.7x. Deals in the $10-$20 million range over the past three years received a median enterprise value multiple of 2.1x revenue, whereas those above $160 million had a median enterprise value multiple of 3.3x revenue.
One notable trend in 2015 was non-tech companies looking to acquire information and tech businesses. Examples with deal values above $1 billion were car manufacturers BMW Group, Audi Group, and Mercedes-Benz with the acquisition of HERE, a digital mapping and location intelligence business, for $3.1 billion; and defense contractor Raytheon with the acquisition of Websense, a cyber-security firm, for $1.9 billion.
Meanwhile, transactions highlighting this trend with deal values below $1 billion included audio and infotainment manufacturer Harmon International, which serves several markets such as the automotive sector, with the acquisition of Symphony Teleca, a software engineering and integration service, for $548 million and Red Bend Software, a provider of software management for connected devices, for $170 million; and aircraft manufacturer Boeing with the acquisition of Peters Software, a provider of aviation training content for commercial and private pilots, as well as 2d3 Sensing, an imagery software company that processes critical intelligence and surveillance data.
Regarding the three horizontal markets in the report, volume in the Media & Marketing portion of the Information Industry improved eight percent over the past year. Transaction value in the horizontal’s B2B Publishing and Information segment more than doubled, from $9.38 billion to $23.01 billion. B2B was also the best represented Media segment with five of the top ten highest value deals in the horizontal.
As for the Software horizontal, deal activity rose nine percent in 2015. This included a 19 percent gain in the Infrastructure segment. In terms of specific buyers, the most active Infrastructure acquirer during the year was IBM with six transactions. This consisted of Gravitant, a developer of hybrid cloud brokerage software; CleverSafe, a data storage technology company; StrongLoop, a software provider that enables developers to build APIs that connect applications and devices; Appcore, a cloud automation management platform; Blue Box Group, a managed private cloud provider built on OpenStack; and AlchemyAPI, a cognitive computing company that will integrate with IBM’s Watson platform.
The Online & Mobile horizontal market saw volume increase 12 percent between 2014 and 2015. The number of deals in the E-Commerce segment gained 16 percent. In terms of value, the largest E-Commerce acquirer in 2015 was online travel company Expedia with a combined total of $4.94 billion paid in transaction value. This consisted of HomeAway, an online marketplace for the vacation rental industry, for $3.24 billion; as well as Orbitz Worldwide for $1.42 billion and Travelocity.com for $280 million.

- See more at: http://www.berkerynoyes.com/publication/pr/2015FY/info.aspx#sthash.lTJwD25U.dpuf

2016's M&A Activity and the Future of M&E - Manatt Phelps & Phillips LLP

Content is still king. With Dalian Wanda Group's $3.5 billion acquisition of Legendary Entertainment in January, this year's media and entertainment M&A activity kicked off with a bang that hasn't slowed down. Comcast's $3.8 billion acquisition of DreamWorks Animation just three months later continued the trend of content consolidation and IP aggregation. Both transactions have varying motivations, but the common denominator is access to franchises and content that can be leveraged across the parent companies' various business units. Content and digital transformation strategies have driven M&A activity so far in 2016 with no signs of slowing down, giving clues about where we'll see activity during the rest of the year.

One major trend that continues is Chinese investment flowing into the United States. Almost 50% of all U.S.-targeted M&A transactions from foreign investors came from China in Q1, and media and entertainment is a significant driver of that figure. In addition to acquisitions, there were a number of investments in U.S. film studios, including Film Carnival's $500 million investment in Dick Cook Studios and Perfect World Pictures' $500 million investment in Universal Pictures' upcoming film slate. China's continued interest in gaining insight into how Hollywood works is paying off for both sides of these deals. This insight will continue to help them ramp up their own production capabilities and speed up their ability to compete with the current global content creators. As a result, Chinese investment and M&A in U.S. media and entertainment should continue throughout 2016.

Complete report

M&A at a Glance (May 2016) - Paul, Weiss, Rifkind, Wharton & Garrison LLP

M&A at a Glance (May 2016)

 

The M&A market was mixed in April 2016, with the U.S. market generally faring better than the global market.  In the U.S., overall deal volume increased by 71.1% to $115.57 billion, which is the highest monthly deal volume for the U.S. in 2016.  The increase in total U.S. deal volume for April 2016 is largely attributable to U.S. strategic activity, which increased by 95.4% to $96.38 billion in volume, as compared to March 2016.  U.S. sponsor-related activity, on the other hand, was relatively flat with an increase of 5.4% to $19.19 billion in volume.  The total number of U.S. M&A transactions decreased by 6.3% to 711.

Conversely, global M&A activity declined slightly in April 2016, with overall deal volume decreasing by 0.4% to $235.11 billion, and global strategic deal volume decreasing by 2.5% to $187.92 billion.  Global sponsor-related deal volume, however, was up by 9.2% to $47.18 billion.  The total number of transactions globally decreased by 10.7% to 2,821, while average global deal value increased by 17% to $159.6 million.  Figure 1.

Complete report:

Do venture capitalists matter?

Okay, entrepreneurs and venture capitalists, here are two words that can help your investment in a startup business succeed: direct flights.

A new study co-authored by an MIT professor shows that venture capitalists do help startup firms by closely monitoring their development, and that the availability of direct airplane flights between the two parties helps improve that oversight.

Indeed, the introduction of a new airline route directly connecting venture capitalists to fledgling companies in which they have already invested leads to a 3.1 percent increase in the patents those firms are granted, as well as a 5.8 percent increase in the citations those patents receive -- compared to equivalent cases where similar investments are made but direct flights never become available.

"The effect is that those companies become more innovative," says Xavier Giroud, an associate professor of finance at the MIT Sloan School of Management.

The research examines nearly 23,000 startups that worked with more than 3,000 venture capital firms over a 30-year period. The study took into account regional economic trends, to make sure that the successes of startups and the introduction of direct flights were not both themselves the consequence of larger economic developments.

The paper detailing the study, "The Impact of Venture Capital Monitoring," will be published in the Journal of Finance. The co-authors are Giroud, who is the Ford International Career Development Professor of Finance; Shai Bernstein, an assistant professor at Stanford University's Graduate School of Business; and Richard R. Townsend, an assistant professor at Dartmouth's Tuck School of Business.

Other things being equal

Venture capitalists (often called VCs) usually provide critical early-stage funding for startup firms across a variety of high-tech industries. This paper addresses a long-running question in the business world: Do venture capitalists actually improve the operations of the firms they back, or are they just identifying startups that are destined to succeed (or fail) in any case?

As Giroud acknowledges, it has long been "an open question whether it [VC involvement] is something that adds value."

Answering in the affirmative, the study zeroes in on cases where direct flights were introduced between areas in which VCs and startups had already established their business relationships. That meant the researchers could compare, on aggregate, two kinds of startups, separated by one variable: Startups whose VCs began working with them more closely during the period of investment, due to the easier travel that became available; and startups in which the VCs remained consistently less involved.

To conduct the study, the researchers employed data from three separate sources: the Thomson Reuters VentureXpert database on VC investments, the National Bureau of Economic Research Patent Data Project, and Department of Transportation data on flights. The three data sets overlapped from 1977 through 2006.

Giroud, Bernstein, and Townsend also conducted a separate survey of 306 venture capital firms to see if the presence of direct flights increased the amount of contact VCs had with the start-ups they had invested in. About 86 percent of the respondents agreed that direct flights allow VCs to spend more time monitoring the firms in their portfolios.

The scholars were conscious of the possibility that regional economic conditions may also affect the distribution and success rates of start-ups, and they adjusted their findings to take into account the annual economic trends of each metropolitan area in question, using the same definitions as the U.S. Census Bureau. That helped them conclude that VC monitoring matters, and that the relative success of start-ups at different times and places was not simply driven by external factors, such as a local economic boom that might also lead to more direct flights.

The consequence, the researchers write in the paper, is that "pre-existing trends are not driving our results."

The study also found that startups connected to their VCs by direct flights are also 1.0 percent more likely to issue a public stock offering and 1.4 percent more likely to have a successful "exit" from their start-up incarnation, via public stock offering or acquisition by another company.

"They are more likely to have a successful IPO," Giroud notes.

Entrepreneurship all over the place

All told, the study examined 22,896 startup companies and 3,158 VC firms. Among other things, they found a wider dispersion of both startups and VCs than the popular image might suggest. About 50 percent of startups and VCs in the study were located outside of Northern California, New England, and New York, the three areas most commonly associated with high-tech startups and investors.

"There are entrepreneurial firms all over the place," Giroud observes.

For his part, Giroud also suggests at least one local or regional policy application of the findings: Lobby for more connections between your nearest airport and the rest of the world.

"Suppose you want to promote entrepreneurship in a given area," Giroud says. "One policy could be to promote the availability of [more] direct flights between the area and VC hubs."