In the third quarter, venture-backed companies generated just USD4.57bn in liquidity through initial public offerings and mergers and acquisitions, down 66 per cent from the USD13.4bn gene
In the third quarter, venture-backed companies generated just USD4.57bn in liquidity through initial public offerings and mergers and acquisitions, down 66 per cent from the USD13.4bn generated in the same period of 2007, according to Dow Jones VentureSource.
While 66 mergers and acquisitions transactions were completed in the quarter, generating USD4.4bn in liquidity, only one venture-backed company, Rackspace Hosting of San Antonio, completed an IPO, raising USD159m.
‘The U.S. venture capital industry is facing the worst IPO market we’ve ever seen,’ says Jessica Canning, global research director for Dow Jones VentureSource. ‘With just USD551m raised via seven IPOs so far this year, 2008 is on pace to be the worst year on record in terms of both numbers of IPOs and liquidity generated.’
‘The ripple effects of the public market crisis are already being felt in the private markets. Without viable liquidity options, venture capitalists aren’t going to invest in innovative technologies and companies, and we may see a pull-back that will have long-term effects on both the public and private markets going forward.’
For the second quarter in a row, fewer than 70 U.S. venture-backed companies completed mergers and acquisitions, with 66 transactions raising just USD4.4bn, down 65 per cent from the USD12.7bn generated in 116 deals during the same period last year and the lowest amount raised since the fourth quarter of 2003. With only 247 mergers and acquisitions completed so far in 2008, the year is set for the lowest number of deals in at least a decade.
‘While the median time to liquidity continues to increase – now at 6.1 years for a merger or acquisition, the median amount paid for a venture-backed company is down to USD56m,’ Canning says. ‘In the third quarter, venture-backed companies were being sold for 46 per cent less than they were at this time during last year’s liquidity spike.’
Information technology companies accounted for the bulk of capital raised via mergers and acquisitions in the third quarter with 48 transactions generating more than USD2.9bn in liquidity, 60 per cent less than the USD7.3bn raised in 74 transactions in the third quarter of 2007. The largest deal of the quarter was SBA Communications’ USD430m acquisition of Westborough, Massachusetts-based wireless infrastructure provider Optasite.
Eleven venture-backed health care companies completed mergers and acquisitions in the quarter, raising USD798m, 68 per cent less than the USD2.5bn raised via 15 deals in the segment in the third quarter of 2007.
The consumer services industry saw three transactions close, generating USD110m in liquidity, while the business and financial services industry recorded three deals worth USD160m. The lone deal in the industrial goods and materials industry, the acquisition of Insitu Group by Boeing, generated USD400m.
