IPO Exits at 30 Year Low, M&A Activity Slows

NEW YORK, Jan. 5 /PRNewswire/ -- Venture-backed company exits continued to lag in the fourth quarter of 2008, according to the Exit Poll report by Thomson Reuters and the National Venture Capital Association (NVCA). There were no venture-backed IPOs in the quarter, and the tally of M&A exits as of the last day of the quarter came to a modest 37 transactions for the period. Full-year 2008 brought just six IPO exits, the fewest annual venture-backed offerings since 1977, when there were also six IPO exits. Preliminary full-year M&A figures show 260 transactions in 2008, the first year since 2003 when there were less than 300 venture-backed acquisitions.

"The most significant impact of the US financial crisis on the venture capital industry has clearly taken place in the exit markets," said Mark Heesen, president of the NVCA. "The inability of our strongest companies to go public and the softening of acquisitions activity continue to have a major ripple effect that now reaches every stage of the venture investment lifecycle. As a result, new investments and fundraising will slow considerably in 2009 until the exit markets re-open and the pipeline is cleared. The venture community is poised and ready to bring the next generation of great companies to the capital markets and strategic buyers and, as we have done historically, contribute substantially to economic growth and innovation."




    Venture-Backed Liquidity Events by Year/Quarter, 2002-2008

                          M&A      *Total   *Average                 Average
                          Deals   Disclosed   M&A             Total    IPO
                 Total    with       M&A      Deal            Offer   Offer
    Quarter/      M&A   Disclosed   Value     Size  **Number  Amount  Amount
    Year         Deals   Values     ($M)      ($M)  of IPO's   ($M)    ($M)

    2002           319     154     7,586.7     49.3     22    2,109.1   95.9
    2003           284     119     7,460.1     62.7     29    2,022.7   69.8
    2004           346     187    15,919.6     85.1     94   11,378.0  121.0
    2005-1          81      45     4,351.9     96.7     10      720.7   72.1
    2005-2          81      34     4,725.0    139.0     10      714.1   71.4
    2005-3         102      48     5,739.5    119.6     19    1,458.1   76.7
    2005-4          87      39     2,594.0     66.5     18    1,592.1   88.5
    2005           351     166    17,410.6    104.9     57    4,485.0   78.7
    2006-1         107      52     5,607.5    107.8     10      540.8   54.1
    2006-2         106      40     4,018.5    100.5     19    2,011.0  105.8
    2006-3          94      42     3,450.8     82.2      8      934.2  116.8
    2006-4          63      26     5,616.8    216.0     20    1,631.1   81.6
    2006           370     160    18,693.6    116.8     57    5,117.1   89.8
    2007-1          83      29     4,540.3    156.6     18    2,190.6  121.7
    2007-2          86      36     3,972.3    110.3     25    4,146.8  165.9
    2007-3         103      52    10,810.0    207.9     12      945.2   78.8
    2007-4          88      43     9,084.1    211.3     31    3,043.8   98.2
    2007           360     160    28,406.7    177.5     86   10,326.3  120.1
    2008-1          73      30     3,929.4    131.0      5      282.7   56.6
    2008-2          72      22     4,154.0    188.8      0        0.0    0.0
    2008-3          78      29     3,741.1    129.0      1      187.5  187.5
    2008-4          37      15     2,090.9    139.4      0        0.0    0.0
    2008           260      96    13,915.4    145.0      6      470.2   78.4

    Thomson Reuters & National Venture Capital Association
    *Only accounts for deals with disclosed values
    **Includes all companies with at least one U.S. VC investor that trade
      on U.S. exchanges, regardless of domicile.

IPO Activity Overview

There were no venture-backed IPOs in the fourth quarter of 2008, the second quarter of the year with no activity. The last year there were two quarters without any IPO activity was 1975, when both the first and fourth quarters had zero exits. By dollar volume, total IPO proceeds in 2008 reached $470.2 million, the lowest value since 1979 with $339.7 million.

Echoing domestic trends, no companies that received US venture financing went public on foreign exchanges in the fourth quarter.

As of December 31, 2008, five of the six venture-backed companies that went public during 2008 were trading below their offering price.

Twenty-eight venture-backed companies are currently filed for an initial public offering with the SEC. This level falls short of 3Q 2008 when 38 venture-backed companies were in registration. There were 40 venture-backed IPOs withdrawn from registration in 2008.

For the full-year period, four venture-backed IPO exits totaling $221.0 million in proceeds came from Life Sciences issuers. The remaining IPOs came from Information Technology companies and accounted for a combined $249.3 million.

The largest IPO of the year was the $187.5 million issue by web hosting provider Rackspace Hosting in August.

Mergers and Acquisitions Overview

As of December 31, 2008, 37 venture-backed M&A deals were reported for the fourth quarter, 15 of which had an aggregate deal value of $2.1 billion. The average disclosed deal value was $139.4 million.

The Information Technology sector dominated the venture-backed M&A landscape, with 30 deals and a disclosed total dollar value of $972.2 million. Within this sector, Internet Specific companies accounted for the bulk of the target companies, with 11 transactions across this sector subset. Life Sciences saw the next highest level of activity with four deals and a combined disclosed value of $173.7 million. Finally, Non-High Technology deals accounted for three exits with disclosed values of $945 million.

For full-year 2008, Information Technology transactions accounted for the majority of M&A exits and volume, with 190 transactions and disclosed aggregate values of $8.3 billion, or 60 percent of the total. Non-High Technology and Life Sciences followed with 25 percent ($3.4 billion) and 15 percent ($2.2 billion), respectively.




    Venture-Backed M&A Industry Breakdown
                                                          Q4 2008

                                                        Number of
                                                        Venture-    Total
                                                         Backed   Disclosed
                                           Number of       M&A     Venture-
                                           Venture-       deals     Backed
                                            Backed       with a      Deal
                                             M&A        disclosed    Value
                       Industry             deals         value      ($M)

     Information   Communications and
      Technology    Media                     2            1        180.0
                   Internet Specific         11            5        320.7
                   Computer Software and
                    Services                 10            3        392.2
                   Semiconductors/Other
                    Elect.                    5            1         60.0
                   Computer Hardware          2            1         19.3
                   TOTAL                     30           11        972.2
     Life
      Sciences     Medical/Health             4            3        173.7
                   TOTAL                      4            3        173.7
     Non-High      Other Products             2            1        945.0
      Technology   Consumer Related           1            0          0.0
                   TOTAL                      3            1        945.0
                                    TOTAL    37           15      2,090.9

    Source: Thomson Reuters & National Venture Capital Association

The largest transaction of the quarter was the acquisition of online payment and marketing technology solutions provider Bill Me Later by eBay. The transaction, valued at $945.0 million, was completed in November.

In the largest transaction of the year, EqualLogic, Inc, a developer of storage area network solutions, was purchased by Dell, Inc. for $1.4 billion in January.

Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 43 percent of the total in the fourth quarter of 2008, slightly lower than in the third quarter when these deals accounted for 45 percent. Those deals returning less than the amount invested accounted for 21 percent of the quarter's total, compared to 24 percent of the total last quarter.

For 2008, 46 percent of M&A transactions returned more than four times the venture investment, compared to 41 percent in full-year 2007. Twenty-eight percent of the deals in 2008 had transaction values less than the venture investment, compared to 2007 when 23 percent of the deals were valued at less than the venture investment.




    Analysis of Transaction Values versus Amount Invested

    Relationship between transaction      Q308    Q408    2007    2008
     value and investment                 M&A**   M&A**   M&A**   M&A**

    Deals where transaction value is
     less than total venture investment    7       3       34      24
    Deals where transaction value is
     1-4x total venture investment         9       5       55      23
    Deals where transaction value is
     4x-10x total venture investment       9       4       32      26
    Deals where transaction value is
     greater than 10x venture investment   4       2       29      14
    Total Disclosed Deals                 29      14      150      87

    Source: Thomson Reuters & National Venture Capital Association
    ** Disclosed deals that do not have a disclosed total investment amount
       are not included.

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About National Venture Capital Association

The National Venture Capital Association (NVCA) represents approximately 460 venture capital firms in the United States. 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 2007 Global Insight study, venture-backed companies accounted for 10.4 million jobs and $2.3 trillion in revenue in the United States in 2006. 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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