Thomson: Venture-Backed M&A Activity Up In Second Quarter

August 11, 2003 (PLANSPONSOR.com) - Following two straight quarters of decline, venture-backed merger & acquisition activity increased due to an increase in activity among the Telecommunications, Biotechnology and Networking/Equipment sectors.

In the second quarter, 72 venture-backed companies were acquired for a total value of $1.84 billion, spread among the 27 targets that disclosed a deal value. These figures represent an average deal value of $68.22 million per disclosed deal, according to Thomson Venture Economics and the National Venture Capital Association (NVCA).

The second quarter’s figures represent an increase from only 58 venture-back acquisitions worth a total of $1.5 billion recorded in the first quarter.   However, the first quarter trumped the latter in terms of average deal value, coming in at $69.20 million.   For the first half of 2003, there was a combined 140 venture-backed acquisitions for a total value of $3.3 billion, with an average deal worth $68.65 million.

“Unlike other venture industry metrics, which show an 80% or greater decline from peak 2000 levels, the number of M&A exits have remained fairly robust. What we need to see going forward is an increase in average valuations of venture-backed acquisitions,” commented Mark Heesen, NVCA President.

Breakdowns

Although the Software sector still dominated the quarter with regard to deal volume with 25 transactions, the total disclosed value of the eight deals reporting was $509.4 million. The largest software deal of the quarter – and the second largest deal of the quarter across all sectors – was Microsoft’s acquisition of Java-based applications designer PlaceWare for $200 million.

The Networking and Equipment and Biotechnology sectors both registered gains over the quarter. Four Networking companies garnered $314 million, an increase from the first quarter when two companies reported $176 million in deal value. The largest deal in this sector was the $178-million acquisition of optical networking equipment developer WaveSmith Networks by Ciena Corporation in June.

Three Biotechnology companies were acquired for $293.98 million, with a fourth not reporting a deal price. Last quarter, six companies attracted $199.2 million. The substantial increase this quarter is attributable to the acquisition of Idenix Pharmaceuticals for $255 million by Novartis Pharma AG, which was the largest deal of the quarter.

Broken down by geographic region, there were two promising developments during the second quarter. California, the epicenter of venture capital activity, retained its supremacy over other regions in terms of number of deals with 33, an increase of ten deals from last quarter’s 23. New England, another major center of venture capital activity, came in with the largest reported value at $785.7 million.

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