Mergers and Acquisitions Continue to Dominate Exit Scene For Full Year 2006
IPO Market Showing Some Signs of Improvement
New York, NY 01/02/2007 - Twenty-one venture-backed companies raised $1.835 billion through initial public offerings (IPOs) and 56 venture-backed M&A deals were reported in the fourth quarter of 2006 according to the Exit Poll report by Thomson Financial and the National Venture Capital Association (NVCA). The data reflect another year of heavy reliance on the M&A market for VC investment exits with a total of 58 venture-backed IPOs raising $5.3 billion in 2006 and 335 M&A transactions with a total disclosed value of $16.6 billion for the full year.
In terms of number of exits, 2006 venture-backed activity in both the IPO and acquisition markets varied only slightly from 2005 levels although these transactions realized higher valuations. The year 2006 marks the second strongest IPO year in terms of dollars raised out of the last six years and it is also the third strongest of the last six in terms of average IPO amount. The average acquisition value for a venture-backed company, for those deals where the acquisition price was disclosed, is the highest in six years at $113.8 million per deal.
There were 17 venture-backed IPOs on non-US exchanges for the year and three of those were in Q4.
View release with tables: www.thomson.com/pdf/financial/news_release_pdfs/Q406_Exit_Poll
IPO Activity Highlights
The largest IPO of the fourth quarter was the $204 million offering from NewStar Financial, Inc. Based in Boston, the debt capital solutions provider priced 12 million at $17 a share. Book Managers were Goldman Sachs and Morgan Stanley.
The perennial sector leader, Technology raised $916 million in public offerings, followed closely by the Life Sciences industry which captured $490 million. The Non-High-Technology sector priced three IPOs that accounted for $428 million.
In addition to the IPOs completed this quarter, there are currently 36 venture-backed companies “in registration” with the United States Securities and Exchange Commission. These companies have filed with the SEC in 2005 or 2006 and are now preparing for their initial public offerings. This is a decrease compared to the 51 companies in registration at the end of the third quarter of 2006. This compares with 57 companies in registration at the end of 2004 and 16 in registration at the end of 2005.
“The year ended strongly for the venture-backed IPO market as we had the highest quarterly volume in two years. However, one quarter does not mean we are out of the woods yet and ideally we would like to see more companies in registration if a recovery is in sight for 2007,” said Mark Heesen, president, National Venture Capital Association. “There is the potential to see measurable Sarbanes-Oxley relief for smaller public companies in 2007, which would be a welcome boost for the US IPO market. In absence of this reform, however, venture capitalists will look at other liquidity paths – foreign exchanges or sale to financial intermediaries - as viable exit alternatives in the coming year,” Heesen added.
Merger and Acquisition Overview
Total acquisition count declined in the fourth quarter for the third consecutive quarter although 2006 totals are similar to the prior several years. The average disclosed deal size for the fourth quarter 2006 was $165.3 million, an improvement from third quarter 2006 and almost triple fourth quarter 2005.
“Despite the lower acquisition volume in the fourth quarter, the overall acquisition volume for 2006 is comparable with 2005 and 2004”, said Alex Tan, Global Private Equity Research Manager of Thomson Financial.
The Technology sector continued to dominate the venture-backed M&A landscape with 44 deals and a disclosed value of $3.2 billion. Within Technology, the Internet Specific sector had 15 transactions, followed by the Computer Software sector with 14 deals. Nine Life Sciences companies were acquired in the fourth quarter with a disclosed deal value of $141.2 million.
The largest disclosed deal of the quarter was the $1.65 billion acquisition of online video sharing services provider YouTube, LLC by Google, Inc. The second largest deal was Sybase, Inc.’s $425 million acquisition of Mobile 265, Inc., which provides inter-carrier messaging solutions for wireless communications.
Acquisitions which returned more than 10x the amount of the original venture investment comprised 30% of the disclosed transactions for the quarter. At the opposite end of the spectrum, 30% of the disclosed acquisition deals returned less than the total venture investment. The smallest percentage of deals was 4.4% returned -- 1-4x investment for the quarter.
About Thomson Financial
Thomson Financial, with 2005 revenues of US$1.9 billion, is a provider of information and technology solutions to the worldwide financial community. Through the widest range of products and services in the industry, Thomson Financial helps clients in more than 70 countries make better decisions, be more productive and achieve superior results. Thomson Financial is part of The Thomson Corporation (www.thomson.com), a global leader in providing integrated information solutions to more than 20 million business and professional customers in the fields of law, tax, accounting, financial services, higher education, reference information, corporate e-learning and assessment, scientific research and healthcare. With revenues of US$8.50 billion, The Thomson Corporation lists its common shares on the New York and Toronto stock exchanges (NYSE: TOC; TSX: TOC).
The National Venture Capital Association (NVCA) represents approximately 480 venture capital and private equity firms. NVCA’s mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation. According to a 2004 Global Insight study, venture-backed companies accounted for 10.1 million jobs and $1.8 trillion in revenue in the United States in 2003. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.
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