Exit activity for venture-backed companies moved closer to levels seen before the economic downturn as 514 companies achieved liquidity in 2010, netting USD39.3 billion, according to industry tracker Dow Jones VentureSource.
That represents a 25% increase in exits from 2009 and is not far from the 613 exits completed in 2007. Capital garnered through exits rose 72% from 2009 but was still down dramatically from the $69.1 billion netted in 2007.
During the fourth quarter of 2010, 126 exits raised USD11.8 billion, a slight increase in activity from the same period last year when 123 exits raised USD11 billion.
"Exit activity is staging a comeback but capital netted lagged as large M&As and IPOs were still uncommon in 2010," says Jessica Canning, director of global research for Dow Jones VentureSource. "While it isn’t clear if companies with blockbuster potential – like Facebook and Groupon – will come to market in 2011, there is a healthy IPO pipeline. Currently, 44 companies are registered to go public, up from 25 at this time last year."
For the first time since 2007, the number of venture-backed initial public offerings (IPOs) reached double digits. Forty-six venture-backed companies went public in 2010, raising USD3.4 billion, a more than five-fold increase from the eight IPOs that raised USD903 million in 2009. During the fourth quarter, 14 IPOs raised USD1.1 billion.
The largest IPO of both the fourth quarter and the year was the USD211 million offering by New York-based FXCM, a provider of foreign exchange trading and services, in December.
The median amount of venture capital raised prior to an IPO rose 60% to USD69 million in 2010 from USD43 million in 2009. The median amount of time it took a company to reach liquidity rose to 8.1 years in 2010 from 7.9 years in 2009.
Despite a drop in mergers and acquisitions (M&As) in the fourth quarter, M&A activity in 2010 was well ahead of 2009. In the fourth quarter, corporate acquirers bought 109 companies for USD10.5 billion, a 7% drop in M&A activity from the same period last year. Overall in 2010, 445 M&As raised USD33.9 billion, a 17% increase in deal activity from 2009 when 381 exits raised USD20.8 billion.
"After holding back on acquisitions the last couple of years, corporations found themselves with a significant amount of cash on hand and the need make strategic acquisitions to maintain a competitive edge," says Scott Austin, editor of Dow Jones VentureWire. "Combined with rising valuations that made investors and entrepreneurs more inclined to sell, M&A picked up – a trend likely to continue into 2011."
Buyouts of venture-backed companies by private equity firms were steady year-over-year. In 2010, private equity firms spent USD1.9 billion to buy 23 venture-backed companies, on par with the 23 venture-backed companies bought for USD1.1 billion in 2009. In the fourth quarter, three buyouts netted $184 million, in line with the three buyouts that netted USD76 million during the same period last year.
The USD46 million median amount paid for a venture-backed company in 2010 was 70% more than the $27 million median in 2009.
The largest M&A deal for both the fourth quarter and the year belonged to Dallas, Texas-based Monitronics International, a provider of monitored security alarm systems, which was acquired by Ascent Media for USD1.2 billion.
In 2010, companies raised a median of $20 million in venture capital financing before achieving liquidity through a merger or acquisition, slightly less than the USD21 million median seen in 2009. In addition, it took a median of 5.2 years for a venture-backed company to exit via a merger or acquisition, less time than the 5.5-year median in 2009.
