Venture-backed mergers and acquisitions remained stable in Q3 2004, with 83 deals totaling $3.92 billion. While the average deal size was slightly lower than Q2 2004, it was 44% higher than Q3 2003. Software and IT services dominated M&A activity. The report also found that most acquired companies in 2004 received their initial venture funding before the tech bubble burst in 2000-2001, demonstrating viable exit options for older companies.

1. Contacts: Emily Mendell, NVCA, 610-359-9609, emendell@nvca.org
Daniel Benkert, Thomson Venture Economics, 212-806-3101, daniel.benkert@thomson.com
VENTURE-BACKED MERGER AND ACQUISITIONS HELD STEADY IN Q3 2004
WITH SUCCESSFUL EXITS GRADUALLY IMPROVING
Software and IT Services Led All Industry Sectors
New York, NY, November 8, 2004 - Venture-backed merger and acquisition activity
remained stable in the third quarter of 2004 with eighty-three companies acquired,
according to Thomson Venture Economics and the National Venture Capital Association.
Forty-three companies disclosed a combined value of $3.92 billion and the average deal
valuation was $91.2 million for the quarter. While the average valuation was
approximately 3% lower than the second quarter, it was 44% higher than the third quarter
of 2003.
Venture-Backed M&A by Year and Quarter, 1999-2004
Avg. Size
Total Total of
Number Disclosed Disclosed Disclosed
of Transaction Value
Value
Quarter Deals Value ($M)
Deals Deals ($M)
1999 240 162 37,545.51 231.76
2000 316 202 68,353.11 338.38
2001 350 165 17,660.67 107.03
2002 315 150 7,830.86 52.20
2003-1 68 21 1,453.29 69.20
2003-2 74 27 1,841.93 68.22
2003-3 77 41 2,127.67 51.89
2003-4 71 34 2,303.20 67.74
2003 290 123 7,726.09 62.81
2004-1 78 44 3,900.00 88.64
2004-2 86 48 4,514.59 94.05
2004-3 83 43 3,924.14 91.26
YTD2004 247 135 12,338.73 91.39
Source: Thomson Venture Economics &
National Venture Capital Association
“The cornerstone of a strong exit market is sustainability, said Mark Heesen, president of
the National Venture Capital Association. “The acquisition activity may fluctuate within
a certain range but over time we are looking for a gradual increase in the number and

2. value of the deals completed. We are seeing a healthier 2004 than 2003 both in the
number and valuation of these companies. Much of this is because some of these
companies established pre-2000 are now gaining some traction.”
Year to date, 2004 has shown a 59.7% increase in total transaction value and a 12.7% rise
in deal volume compared to the first three quarters of 2003. Further, an analysis of the
relationship between transaction values and amounts invested by venture capitalists
shows the improving strength of the market in 2004. Over the first nine months of 2004,
42 out of 134 disclosed value deals reported transaction values at least four times greater
than the amount invested. These exits are 31.1% of the total thus far in 2004, while over
the same period of 2003 they represented only 20.2% of the activity. Those deals that
returned values greater than ten times the amount invested have been more prevalent this
year as well, accounting for 13.4% of the disclosed value deals. During the first three
quarters of 2003, they comprised only 4.5%.
Analysis of Transaction Values versus Amount Invested
1Q-3Q 1Q-3Q
Relationship between transaction value and investment 2003 2004
Deals where transaction value is less than total venture
investment 34 47
Deals where transaction value is 1-4x total venture
investment 37 45
Deals where transaction value is 4x-10x total venture
investment 14 24
Deals where transaction value is greater than 10x venture
investment 4 18
Total Disclosed Deals 89 134**
Source: Thomson Venture Economics &
National Venture Capital Association
** In 2004 135 deals had a disclosed value, but one of these targets
did not have a disclosed total investment
Software targets had a strong third quarter, making up 39% of all deals, with thirty-three
companies acquired. Of these, seventeen disclosed a total value of $1.5 billion. In the
second quarter, ten software companies out of twenty-five reported a combined value of
$791.3 million. The strength of the software sector this quarter was anchored by three
deals. Seisint was acquired by LexisNexis Group for $775 million; Matrics was bought
by Symbol Technologies for $239 million; and Procket Networks sold to Cisco for $89
million. All three deals were in the top ten for the quarter. The Seisint deal is also the
largest of 2004 thus far.

3. IT Services ranked second in the third quarter with five deals out of seven reporting $1.1
billion in transaction value. E-commerce services company Lynk Systems was acquired
for $525 million by the Royal Bank of Scotland; and Lucent Technologies paid $295.7
million for Telica, a telecommunications equipment supplier.
Venture-Backed M&A Activity by Sector, Q3 2004
Q3 2004
Avg. Size
of
Disclosed
Disclosed Value
Total Total
Value Deals
Industry Deals Deals Value($M) ($M)
Software 33 17 1,535.56 90.33
IT Services 7 5 1,108.77 221.75
Telecommunications 4 3 340.21 113.40
Media and Entertainment 7 3 265.50 88.50
Medical Devices and
Equipment 5 3 173.50 57.83
Biotechnology 7 5 148.72 29.74
Networking and Equipment 4 3 125.45 41.82
Semiconductors 2 1 95.53 95.53
Business Products and
Services 3 1 73.00 73.00
Computers and Peripherals 3 1 53.00 53.00
Consumer Products and
Services 1 1 4.90 4.90
Electronics/Instrumentation 1 N/A N/A N/A
Financial Services 2 N/A N/A N/A
Healthcare Services 1 N/A N/A N/A
Industrial/Energy 1 N/A N/A N/A
Other 1 N/A N/A N/A
Retailing/Distribution 1 N/A N/A N/A
83 43 3,924.14 91.26
Source: Thomson Venture Economics &
National Venture Capital Association

4. An examination of funding histories reveals that 79% of the companies acquired in 2004
received their first round of venture financing prior to the technology bubble burst. Of
the 18 companies that received greater than 10x the venture investment this year, 11 were
funded pre-bubble burst. These figures demonstrate availability of viable exit options for
companies that survived the recession.
Funding History of Companies
Acquired in 2004 (Q1 – Q3)
Total number of
companies
Year of acquired this year
First that had first
Investment funding in:
1984 1
1992 1
1994 2
1995 11
1996 7
1997 14
1998 36
1999 60
2000 63
2001 27
2002 13
2003 10
2004 2
247
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About NVCA
The National Venture Capital Association (NVCA) represents approximately 450 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 U.S. 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.