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Venture-backed IPO & Acquisitions Q4 05
Venture-backed IPO & Acquisitions Q4 05
Venture-backed IPO & Acquisitions Q4 05
Venture-backed IPO & Acquisitions Q4 05
Venture-backed IPO & Acquisitions Q4 05
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Venture-backed IPO & Acquisitions Q4 05

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  • 1. Emily Mendell, NVCA, 610-565-3904, emendell@nvca.org Joshua Radler, Thomson Venture Economics, 646-822-7323, Joshua.radler@thomson.com VENTURE-BACKED IPO ACTIVITY WEAK IN Q4 AND FULL YEAR; ACQUISITIONS MARKET CARRIED 2005 EXITS FOR VENTURE-BACKED COMPANIES New York, NY- January 3, 2006 – Seventeen venture-backed companies raised $1.6 billion through initial public offerings (IPOs) and 78 venture-backed acquisitions were reported in the fourth quarter of 2005, according to the Exit Poll report by Thomson Venture Economics and the National Venture Capital Association (NVCA). The fourth quarter exit activity mirrored the full year 2005 which was characterized by a significantly weak IPO market propped up by a stronger acquisitions market. For the full year 2005, fifty-six venture-backed IPOs raised a total of $4.5 billion representing a 40% decline in volume from 2004 while the acquisitions market saw 330 transactions with a disclosed value of $14.4 billion, similar to the previous year. Venture-Backed Liquidity Events by Year/Quarter, 2000-2005 Total Total Average M&A Deals **Average M&A IPO IPO with Disclosed M&A Deal Offer Offer Total M&A Disclosed Value Size ***Number Amount Amount Quarter/Year Values ($M) ($M) ($M) ($M) Deals of IPOs 2000 317 203 68,492.1 338.4 264 25,499.4 96.6 2001 353 165 16,798.9 101.8 41 3,489.9 85.1 2002 316 151 7,874.4 52.1 24 2,473.5 103.1 2003-1 69 21 1,453.3 69.2 1 77.2 77.2 2003-2 75 27 1,841.9 68.2 2 164.0 82.0 2003-3 78 41 2,127.7 51.9 9 732.8 81.4 2003-4 71 34 2,303.2 67.7 17 1,048.7 61.7 2003 293 123 7,726.1 62.8 29 2,022.7 69.7 2004-1 80 45 3,921.0 87.1 13 2,721.1 209.3 2004-2 89 48 4,514.6 94.1 29 2,077.8 71.6 2004-3 86 46 4,140.1 90.0 24 3,225.6 134.4 2004-4 84 46 2,862.2 62.2 27 2,990.4 110.8 2004 339 185 15,437.9 83.4 93 11,014.9 118.4 2005-1 80 45 4,209.9 93.6 10 720.7 72.1 2005-2 76 32 3,691.0 115.3 10 714.1 71.5 2005-3 96 46 4,094.8 89.0 19 1,458.1 76.7 2005-4* 78 34 2368.8 69.7 17 1,568.1 92.2 2005 330 157 14,364.4 91.5 56 4,461.0 79.7 Thomson Venture Economics & National Venture Capital Association Data comprises transactions reported as closing as of 12/30/05 *Q4 2005 M&A data is preliminary and subject to change **Only accounts for deals with disclosed values ***Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile
  • 2. According to Mark Heesen, president of the NVCA, the venture capital exit market was characterized in 2005 by a lackluster IPO market, which can be attributed to a number of factors. “For the IPO market to improve, we need relief from certain hurdles associated with the Sarbanes Oxley Act, but we also need an investing public that is bullish on technology,” said Heesen. “Investors have every reason to have confidence in the venture-backed companies in registration today. Most have survived the boom and the bust, which speaks to the soundness of their business models and the strength of their discipline. They have weathered significant difficulties and understand excess and how to avoid it. Once the market begins to accept these organizations and that is reflected in their share prices, emerging companies will consider the IPO path once again.” IPO Activity Highlights The fourth quarter of 2005 was dominated by the Technology sector, which saw ten venture-backed IPOs raise $1.1 billion. The Technology sector also contained the largest IPO of the fourth quarter and the year, with IntercontinentalExchange, Inc.’s $415.9 million offering. IntercontinentalExchange was backed by TA Associates and Goldman, Sachs & Co. The second largest IPO of the quarter, DealerTrack, Inc., was also from the Technology sector. DealerTrack raised $170.0 million and was backed by J.P. Morgan Partners and GRP Partners. The Life Sciences sector had five venture-backed IPOs raise a total of $191.2 million in the fourth quarter. The largest Life Sciences IPOs in the quarter were NxStage Medical, Inc. and Somaxon Pharmaceuticals, Inc., which both raised $55.0 million. In 2005, the Technology sector saw 26 venture-backed companies raise a total of $2.6 billion, with the Internet Specific category leading the sector with ten IPOs raising $1.3 billion. The Life Sciences sector saw 23 companies raise a total of $1.2 billion, while Non-high Technology had seven IPOs raise $727.6 million. The two largest IPOs of 2005, IntercontinentalExchange, Inc. and OptionsXpress, Inc., were from the Technology sector. The third largest venture-backed IPO of the year, Focus Media, came from the Non-high Technology sector. As of December 30th, 33 of the 56 companies, or 59%, were trading at or above their offering price. IPO Industry Breakdown Q4 2005 Full-Year 2005 *Number Total *Number of Venture of Total Venture Backed Venture Venture Backed Offering Backed Backed IPO's in Size IPO's in Offering Industry the U.S. ($M) the U.S. Size ($M) Internet Specific 4 602.1 10 1,259.3 Semiconductors 3 240.5 7 570.1 Communications/Media 2 103.5 4 315.8 Computer Software 1 170.0 3 356.5 Computer Hardware -- -- 2 55.2 Technology TOTAL 10 1,116.1 26 2,556.9 Medical/Health 4 136.2 13 670.0 Biotechnology 1 55.0 10 506.4 Life Sciences TOTAL 5 191.2 23 1,176.4 Non-high Technology 2 260.8 7 727.6 Other TOTAL 2 260.8 7 727.6 Thomson Venture Economics & National Venture Capital Association *Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile
  • 3. There are currently only 16 companies ‘in registration’ with the Securities and Exchange Commission, meaning they have filed during 2005 and are currently preparing for their initial public offerings. This compares with 57 venture-backed companies that were in registration at the end of 2004. Merger and Acquisition Highlights Venture-backed M&A activity remained strong for the second consecutive year, carrying forward the recovery from the post-bubble trough. Based on data collected as of December 30, 2005, the number of transactions for the year held steady at 330 compared to 339 in 2004. The average disclosed deal value rose in 2005 to $91.5 million from $83.4 million in 2004. Daniel Benkert, senior analyst at Thomson Financial said, “We have entered a short-term period of stasis, where the mass of those bubble-era companies are finally reaching a level of maturity worthy of a profitable exit. Considering the uncertain state of the IPO option, the M&A market remains healthy and we are probably seeing that market coming to a plateau, but a reasonably sustainable and very rational one.” M&A Industry Breakdown Q4 2005 Full-Year 2005 Total *Number Total Venture of Venture *Number *Number of Backed Venture *Number of Backed Disclosed Backed Disclosed of Venture Venture Backed Venture Backed Backed M&A Deal M&A M&A Deal M&A deals (disclosed)deals Value deals in (disclosed)deals Value Industry ($M) the U.S. ($M) in the U.S. in the U.S. in the U.S. Internet Specific 20 9 452.0 76 36 3408.1 Semiconductors 6 4 173.7 14 6 281.2 Communications/Media 4 3 81.0 31 15 2316.8 Computer Software 24 7 675.7 109 50 3462.7 Computer Hardware 5 3 69.9 13 6 233.9 Technology TOTAL 59 26 1,452.2 243 113 9,702.6 Medical/Health 11 5 682.5 46 25 3277.0 Biotechnology 4 1 113.5 12 4 699.5 Life Sciences TOTAL 15 6 796.0 58 29 3,976.5 Non-high Technology 4 2 120.4 29 15 685.2 Other TOTAL* 78 34 2,368.8 330 157 14,364.4 *Q 4 2005 M&A numbers are preliminary and are subject to change The Software sector saw the most transactions in the fourth quarter at 24 followed closely by the Internet – Specific sector at 20. These sectors also hold the number one and two positions for the full year 2005 at 109 and 76 deals respectively. Life Sciences, which includes biotechnology and medical devices, saw 15 deals in the fourth quarter and 58 deals for the full year.
  • 4. Analysis of M& A Transaction Values versus Amount Invested Relationship between transaction 2004 2005 value and investment Deals where transaction value is less than total venture investment 62 48 Deals where transaction value is 1-4x total venture investment 61 58 Deals where transaction value is 4x- 10x total venture investment 39 30 Deals where transaction value is 21 18 greater than 10x venture investment Total Disclosed Deals 183 154 Source: Thomson Venture Economics & National Venture Capital Association * In 2004, 185 deals had disclosed values, but two of these targets did not have a disclosed total investment amount. ** In 2005, 157 deals had disclosed values, but three of these targets did not have a disclosed total investment amount. An analysis of the returns these acquisitions generated in transaction values shows a market with a strong degree of symmetry with regard to the level of success that can be expected using the M&A liquidity option. Both 2004 and 2005 follow the same pattern, with roughly 1/3 of deals returning at least 4x or greater the investment, 1/3 returning 1x – 4x the investment, and 1/3 bringing in less than the amount invested. Thomson Venture Economics, a Thomson Financial company, is the foremost information provider for equity professionals worldwide. Venture Economics offers an unparalleled range of products from directories to conferences, journals, newsletters, research reports, and the VentureXpert™ database. For over 40 years, Venture Economics has been tracking the venture capital and buyouts industry. Since 1961, it has been a recognized source for comprehensive analysis of investment activity and performance of the private equity industry. Venture Economics maintains a long-standing relationship within the private equity investment community, in-depth industry knowledge, and proprietary research techniques. Private equity managers and institutional investors alike consider Venture Economics information to be the industry standard. For more information about Venture Economics, please visit www.ventureeconomics.com. Thomson Financial Thomson Financial is a US$1.73 billion provider of information and technology solutions to the worldwide financial community. Through the widest range of products and services in the industry, Thomson Financial helps clients in more than 70 countries make better decisions, be more productive and achieve superior results. Thomson Financial is part of The Thomson Corporation (www.thomson.com), a global leader in providing integrated information solutions to more than 20 million business and professional customers in the fields of law, tax, accounting, financial services, higher education, reference information, corporate e-learning and assessment, scientific research and healthcare. With revenues of US$8.10 billion,
  • 5. The Thomson Corporation lists its common shares on the New York and Toronto stock exchanges (NYSE: TOC; TSX: TOC). The National Venture Capital Association (NVCA) represents approximately 460 venture capital and private equity firms. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation. According to a 2004 Global Insight study, venture-backed companies accounted for 10.1 million jobs and $1.8 trillion in revenue in the United States in 2003. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.

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