NEW YORK – As the public financial markets are warming up to venture-backed companies, corporate acquirers are pulling back, according to Dow Jones VentureSource.
The industry tracker said 109 venture-based companies achieved liquidity in the second quarter, netting $11.2 billion. That’s a 13 percent decrease in exits and a 26 percent increase in capital raised from the second quarter last year.
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“Deal-making is in a limbo – unstable global markets and sky rocketing IPO valuations are giving both acquirers and companies sufficient cause to wait,” said Jessica Canning, director of global research for Dow Jones VentureSource. “Everyone is watching the performance of recent IPOs to see how justifiable valuations really are.”
In the second quarter, acquirers bought 91 companies for $9.2 billion, a 13 percent drop in the number of mergers and acquisitions from the same period last year when 105 acquisitions netted $7.2 billion.
Information technology was the most active area for acquisitions. Driven by interest in software companies, the IT industry saw 38 M&As with a total value of $3 billion. Consumer services, which includes consumer Web companies, was the second-most active industry for acquisitions, as 21 companies were bought for $2.1 billion.
While most M&As involved corporations buying venture-backed companies, eight startups sold themselves to other venture-backed companies, accounting for 9 percent of the quarter’s M&As.
Buyouts of venture-backed companies by private-equity firms also tracked below the same period last year. Private-equity firms bought four venture-backed companies for $283 million in the most recent quarter, down slightly from the same period last year when private equity firms bought five companies for $832 million.
The $64 million median amount paid for a venture-backed company in the most recent quarter was slightly less than the $66 million median in the same period last year.
To reach an M&A or buyout, companies raised a median of $19 million in venture financing, on par with the same period last year, and took a median of 5.6 years to build their company, slightly more time than the 5.5-year median in the second quarter of last year.
Fourteen venture-backed companies went public in the second quarter, raising $1.7 billion, a slight drop in the number of deals. However, this year the companies nearly doubled the amount of money they raised from their public offerings. With a total of 25 IPOs in the first two quarters, however, IPO activity is tracking ahead of the first six months of 2010, and for the first time since 2007, IPO activity has been in double-digits for three consecutive quarters.
“IPOs have been steady but the window has yet to fling wide open,” said Scott Austin, editor of Dow Jones VentureWire. “Despite talk of tech bubbles and excitement around offerings from Internet companies like LinkedIn and Pandora, macroeconomic issues could keep a tight hold on the IPO window as investors may be encouraged to stick with safer securities.”
