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European venture-backed IPO activity slows in 2007, says Dow Jones

Thirty-eight venture-backed European companies completed initial public offerings in 2007, raising EUR893.6m, according to the European Liquidity Report from Dow Jones VentureSource, down

Thirty-eight venture-backed European companies completed initial public offerings in 2007, raising EUR893.6m, according to the European Liquidity Report from Dow Jones VentureSource, down 49 per cent from the EUR1.74bn raised by 89 venture-backed IPOs in 2006.

While this decline is in sharp contrast to the robust IPO market in the US, the report says the markets continue to see great value in European IPO companies. The median amount raised at IPO approached EUR15.8m in 2007, a six-year high, while the median pre-valuation for these companies reached EUR59.2m, the most since 2000.

‘In a reversal of fortunes, after two years of healthy interest from the public exchanges, European venture-backed companies saw the IPO market pull back in 2007,’ says Jessica Canning, director of global research for Dow Jones VentureSource.

‘While this year’s IPO total is a significant drop, it’s still head and shoulders above the anaemic markets we saw in 2002 and 2003. Investors can find solace in the fact that, despite fewer public offerings, the median amount raised by venture-backed companies at IPO is at the highest level since 2001.’

According to the report, the median time between initial equity financing and IPO now stands at a record 6.9 years. Even so, venture capitalists are not pumping a great deal more money into these companies, as the median amount of venture capital raised prior to IPO was EUR7.8m, up 4 per cent from 2006 but nowhere near the record of EUR13.3m.

For the first time on record, venture-backed healthcare companies accounted for the greatest number of IPOs in Europe, as 18 companies raised EUR484.3m through public offerings, while 14 IT companies raised EUR215.5m.

Twelve of the venture-backed companies that launched IPOs in 2007 were based in France, five in Sweden, four in Germany, four in the UK and three in Norway. The largest IPO of the year was by energy exploration company ElectroMagnetic GeoServices of Trondheim, Norway, which raised EUR94.9m at its offering last March.

The report identified 136 merger and acquisition transactions for European venture-backed companies in 2007, down from 218 completed in 2006 and the lowest annual total since 2000. Of last year’s total, 100 were IT companies, 18 healthcare companies and 13 business, consumer and retail companies.

‘In 2007, we saw a slowdown in the number of mergers and acquisitions for European venture-backed companies, but this isn’t to say that venture capitalists aren’t realising substantial returns from these exits,’ Canning says. ‘In fact, the median overall amount paid for a European venture-backed company reached EUR23m, up 31 per cent from the previous year and the highest total since the tech boom.’

The report says the median amount paid for a European technology company in 2007 was nearly EUR30m, up 62 per cent over 2006, while the median price for a healthcare company jumped 51 per cent to EUR22.5m.

However, it took more time and capital for venture capitalists to navigate portfolio companies toward an exit. The median amount raised by a venture-backed company prior to sale reached a record EUR6.7m, while the median amount of time from initial equity financing to exit also set a new mark of 6.6 years.

Thirty-two of the companies involved in M&A transactions were based in the UK, 26 in France, and 12 each in Germany, Finland and Sweden. The largest deal of the year involving a venture-backed firm was the EUR396.6m acquisition by Equinix of data management company IXEurope of West Drayton in the UK.

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