Venture Backed M&A Volume Holds Steady; Valuations Rise Again In Q2 2005
New York, NY, 08/08/2005
Venture-backed merger and acquisition volume in the second quarter held steady as disclosed valuations continued to rise, according to Thomson Venture Economics and the National Venture Capital Association (NVCA). Over the course of the quarter 75 companies were acquired, with 32 reporting a combined value of $4.4 billion and an average disclosed value of $136.7 million.
These figures represent a 3.9% increase in the combined disclosed value over last quarter’s $4.2 billion spread across 45 disclosed value deals. However, the quarterly average deal value rose 46% from the first quarter to the highest level in four years. The $136.7 million average was the highest since Q1 2001, which had an average deal value of $207 million. The Q2 2005 median disclosed deal size of $68.8 million was the highest since the last quarter of 2000, which had a median value of $77 million.
“Given the lackluster IPO market, we are encouraged by the continued relative strength of M&A activity, which has been the brighter light in the 2005 exit picture for venture-backed companies,” said Mark Heesen, president of the NVCA. “There are companies that were funded in 1999 and 2000 which are just now entering maturity and we will be watching to see how they fare. Transaction volume is in line with historical norms and we expect to see another year of 300 or more deals. It is critical however, that valuations continue to strengthen, as the ultimate measure of success is the number of emerging companies acquired at a significant multiple of their total venture investment.”
The half year totals reinforce evidence of a stable M&A market, registering slight gains over the first half of 2004. Seventy-seven deals out of 154 in the first half of 2005 reported a total value of $8.6 billion, a 1.75% increase over the first half of last year when 93 deals out of 169 reported a total of $8.4 billion. While the average deal size increased in 2005 from 2004’s $90.7 million to $111.5 million, the median value declined from $48.8 million to $42.5 million in 2005.
The second quarter saw a substantial decline in deal values in the Software industry. While still preeminent in the number of deals closed, 10 of the 23 deals reported just $509.9 million in combined value. That $51 million average deal size was the third lowest across all sectors, followed only by Healthcare Services ($35 million average) and Business Products and Services ($9.7 million average).
The largest deal of the quarter was in the Industrial/Energy sector. Antero Resources, a natural gas and oil producer was acquired by XTO Energy for $842.9 million. This was also the largest deal since the $2.8 billion acquisition of data communications company Cyras Systems in the first quarter of 2001.
Biologics developer Angiosyn completed its acquisition by Pfizer for $527 million, making it the second largest deal of the quarter and accounted for most of the $767 million brought in by Biotechnology targets. Rounding out the top three for the quarter was the Internet-era company Shopzilla, a shopping-focused search engine. It was bought by EW Scripps for $525 million.
Daniel Benkert, senior analyst at Thomson Venture Economics sees mixed signals in the quarterly results:
“Aggregate valuations this quarter were up across the board, with particularly impressive gains in average and median deal sizes,” said Benkert. “However, the top 10 deals of the quarter accounted for almost 80% of the disclosed total. That figure is more reminiscent of the post-bubble lean period when the top 10 ranged between 70 and 90% of quarterly totals as opposed to the 60% range of 2004. This suggests that while the best deals are getting larger, the remaining deal values are much more static. One year into the recovery the industry is still shedding underperforming investments.”
A ratio analysis of company acquisition price to the total venture investment shows similar success patterns in the first half of 2004 and 2005. Approximately one third of the transactions yielded less proceeds than the venture investment; one third returned 1 – 4X investment; and one third return more than 4X investment.
About Thomson Venture Economics
Thomson Venture Economics, a Thomson Financial company, is the foremost information provider for equity professionals worldwide. Venture Economics offers an unparalleled range of products from directories to conferences, journals, newsletters, research reports, and the Venture Expert™ database. For over 35 years, Venture Economics has been tracking the venture capital and buyouts industry. Since 1961, it has been a recognized source for comprehensive analysis of investment activity and performance of the private equity industry. Venture Economics maintains a long-standing relationship within the private equity investment community, in-depth industry knowledge, and proprietary research techniques. Private equity managers and institutional investors alike consider Venture Economics information to be the industry standard. For more information about Venture Economics, please visit www.ventureeconomics.com.
About Thomson Financial
Thomson Financial is a US$1.73 billion 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$8.10 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 475 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 U.S. 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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