January 3, 2011

Wall Street Journal/VC Dispatch

M&A, IPOs Finish 2010 With A Pop For Venture Investors

The year wrapped up with a robust amount of deal activity, bringing some much-needed liquidity to U.S. venture funds.

The fourth quarter saw more money change hands in acquisitions of venture-backed companies than any quarter since the end of 2009. Venture firms sold $10.65 billion worth of companies in 112 deals, beating out the third quarter’s total by more than $2 billion on 24 fewer deals, according to VentureSource, a research unit of Dow Jones & Co., publisher of this newsletter.

At $35.88 billion and 468 deals, the total acquisition activity scorched past last year’s total of $21.93 billion and 404 deals in 2009, making it the best year for venture-backed acquisitions since 2007, when 532 acquisitions totaled $61.57 billion.

As for initial public offerings, 46 companies hit the public markets in the year, far more than the anemic totals of eight and seven in the previous two years. And the pipeline looks strong: 44 companies are currently registered to go public, compared with 25 at this time last year.

Also helping some venture capitalists immensely was M&A activity in the public markets, with several publicly traded, venture-backed companies like 3Par Inc., Compellent Technologies Inc. and Netezza Inc. selling to larger players.

The upward trend should continue, said Jeff Becker, a partner at investment bank America’s Growth Capital. “Everyone agrees that the level of activity has picked up since the summer,” he said. “Bigger players are being more active and back to playing offense.”

At the same time, with valuations generally higher than they were two years ago, venture capitalists are more willing to part with companies, leading to more M&A deals in the $50 million to $200 million range, Becker said.

The median acquisition size soared to $95 million in the quarter, the highest three-month total since the fourth quarter of 2009 and the second highest since the second quarter of 2000. That brought the 2010 median total up to $46 million, the highest since 2007.

Two of the three biggest acquisitions this quarter came from health care, with the sales of Ardian Inc. and Bravo Health Inc. for $800 million and $545 million, respectively. The largest deal in the quarter was the $1.2 billion sale of alarm monitoring company Monitronics International Inc. Health care companies led the field of new public offerings this quarter, making up eight of the quarter’s 14 venture-backed IPOs and bringing in $644.6 million of the $1.13 billion raised.

For the year, Monitronics and Adrian topped the acquisition value list. At No. 3 is the $785 million sale of Acclarent Inc. to Ethicon for $785 million, followed by the $750 acquisition of AdMob Inc. by Google Inc. (VentureSource counts deals by their closing date.)

The largest IPOs for the year include FXCM Inc., which raised $210.8 million, Tesla Motors Inc. ($202 million) and Pacific Biosciences of California Inc. ($200 million).

Google made the most acquisitions of venture-backed companies by far with 10 this year, followed by Facebook Inc. and International Business Machines Inc. with five apiece.

The median amount of time it took for companies to reach an acquisition in 2010 fell for the third straight year to 5.2, which compares with 5.5 in 2009, 6.1 in 2008 and 6.5 in 2007. The time to an IPO is much higher – 8.1 years for the companies that went public in 2010, roughly in line with last year’s 7.9.