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Venture-backed IPO market has active first quarter

During the first three months of the year, eight US venture-backed companies raised USD711m by going public on US stock exchanges, matching the number of initial public offerings that occurred throughout 2009, according to Dow Jones VentureSource.

Corporations bought 77 companies for USD4bn through mergers and acquisitions during the first quarter, on par with the 77 deals that raised USD3.4bn during the same period last year.

“After two difficult, nearly dormant years for IPOs, venture-backed companies started 2010 with a strong showing in the public market,” says Jessica Canning, global research director for Dow Jones VentureSource. “With investors looking to take advantage of the open IPO window and 44 US venture-backed companies in IPO registration, 2010 will be an active year as long as the public markets continue showing interest in venture-backed offerings.”

According to VentureSource, 77 US-based venture-backed companies raised USD4bn through a merger or acquisition during the most recent quarter. Deal activity was flat over the same period last year and was still a far cry from the 109 deals completed during the first quarter of 2008.

The USD27m median amount paid for a venture-backed company in the most recent quarter is a 17 per cent increase from the USD23m median paid during the same period in 2009.

The largest M&A deal of the quarter belonged to Menlo Park, California-based Acclarent, a provider of medical devices for the ear, nose and throat, which was acquired by Ethicon, a subsidiary of Johnson & Johnson, for USD785m.

The first quarter of 2010 was the most active quarter for venture-backed company IPOs since the fourth quarter of 2007 when 26 companies went public, according to Dow Jones VentureSource. During the most recent quarter, eight companies raised USD711m through public offerings. Last year during the same period no venture-backed company went public.

The quarter’s largest IPO belonged to Cambridge, Massachusetts-based Ironwood Pharmaceuticals, a drug developer, which raised USD188m.

It took a median of 5.4 years for a venture-backed company to reach liquidity via a merger or acquisition. This is 15 per cent more than the 4.7-year median in the first quarter of 2009, but still less than the medians seen during the same period in 2007 and 2008, 6.1 and 6.6 years respectively.

Companies that exited during the first quarter raised a median of USD19m in venture capital before exiting through a merger or acquisition, a 19 per cent increase from the USD16m median during the same period last year.

“We are seeing a trend toward quicker exits,” says Canning. “Some venture investors have been building companies that can more quickly reach an exit while others have been under pressure to post returns or exit younger start-ups to dedicate their resources to later-stage companies.“

It took companies that went public during the first quarter a median of 10.4 years and USD156m in venture capital to achieve liquidity. This is more than the median 7.9 years and USD32m in capital it took for companies to reach an IPO in 2009.

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