The fourth quarter saw US venture-backed companies begin reversing the trend that saw severely depressed liquidity levels through the first three quarters of 2009.
While still sitting on the sidelines of the public markets, companies staged a comeback in the private markets where corporate acquirers snapped up 86 companies for a total USD7.3bn, according to industry tracker Dow Jones VentureSource.
During the fourth quarter, three initial public offerings raised USD220m.
Throughout 2009 venture-backed companies generated USD17.1bn in liquidity, 34 per cent less than the USD26.1bn produced in 2008. Forty-four per cent of the year’s total liquidity was generated in the fourth quarter.
“The fourth quarter has set the stage for an active year in M&As in 2010,” says Jessica Canning, director of global research for Dow Jones VentureSource. “As the economy improves, acquirers are gaining confidence in their own financial situation and returning to strategic acquisitions. At the same time, the steady trickle of public offerings is teasing investors who expect the IPO window will re-open in the coming year.”
According to VentureSource, the USD7.3bn generated by mergers and acquisitions in the fourth quarter of 2009 is a 49 per cent increase from the USD4.9bn raised in the same period last year. Throughout 2009, 326 M&A transactions garnered USD16.2bn, a 37 per cent drop from the USD25.6bn raised through 380 M&As in 2008.
For the first time since 2000, the median amount paid for a venture-backed company was more than USD100m. In the most recent quarter the median paid was USD145m, almost eight times more than the USD19m median paid during the same period last year. The USD27m median amount paid for a venture-backed company throughout 2009, however, was 18 per cent less than the USD33m median in 2008.
“Several large deals spurred a dramatic increase in the median amount acquirers paid for a company during the fourth quarter,” says Canning. “But the median amount paid throughout 2009 was still below the levels seen in 2007, a positive sign for acquirers looking to purchase companies at reasonable prices.”
The largest M&A deal for both the quarter and the year belonged to Henderson, Nevada-based Zappos.com, an online shoe and clothing retailer, which was acquired by Amazon.com for USD847m.
Eight companies completed public offerings in 2009, raising USD904m, a 64 per cent increase from the USD551m generated through seven IPOs in 2008.
The year’s largest IPO was the USD371m offering by Watertown, Massachusetts-based A123 Systems, a provider of rechargeable lithium ion battery systems, in late September. The fourth quarter’s largest IPO was an USD80m offering by Chicago-based Echo Global Logistics, a provider of transportation management solutions, in October.
“With 25 venture-backed companies currently in IPO registration, it is clear that many entrepreneurs and their investors expect the market to improve in the coming year,” says Canning.
In 2009, companies raised a median of USD18m in venture capital before achieving liquidity through a merger or acquisition. This is 18 per cent less than the USD22m median seen in 2008. In addition, it took a median of five years for a venture-backed company to exit via a merger or acquisition – 17 per cent less time than the six-year median in 2008.
In terms of IPO companies, the median amount of venture capital raised prior to an IPO fell 22 per cent from USD55m in 2008 to USD43m in 2009. The median amount of time it took a company to reach liquidity fell to 7.9 years after hitting a record 8.7 years in 2008.
