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M&A Activity Down 22 Percent in Q1, But IPOs And Acquisition Amounts On The Rise

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DowJones Venture Source has released its quarterly data on venture-backed exists and its appears that M&A activity has dropped in Q1 2011 despite the momentum that venture-backed exits gained throughout 2010.

In the first quarter of 2011, 104 U.S.-based venture-backed companies achieved liquidity, netting $9.8 billion, according to VentureSource. That represents a 21% decrease in exits and a 17% increase in capital raised from the first quarter of 2010 when 131 exits raised $8.4 billion.

So why is M&A activity down? Jessica Canning, director of global research for Dow Jones VentureSource says that despite the fact that companies have plenty of cash on hand, acquirers may feel that rising valuations are making acquisitions more risky.

In the first quarter, corporate acquirers bought 91 companies for $8.9 billion, which is a a 22% drop in M&A activity from the same period last year when 116 acquisitions netted $7.4 billion. Despite the down economy, M&A activity was slightly higher than the first quarter of 2009 when 83 acquisitions raised $3.3 billion. Private equity firms spent $128 million to buy two venture-backed companies in the most recent quarter, down significantly from the same period last year when private equity firms bought seven companies for $260 million.

The median amount paid for a venture-backed company in the most recent quarter was $55 million, which is more than double the $21 million median in the same period last year. To achieve an M&A or buyout, venture-backed companies raised a median of $13 million in venture financing, which is 38% less than the same period last year, and took a median of 4.6 years to build their company, less time than the 5.1-year median in the first quarter of last year. The largest M&A deal in the first quarter belonged to Mountain View, Calif.-based Ardian, a developer of medical devices to treat hypertension, which was acquired by Medtronic for $800 million.

IPO activity is up says, Venture Source. Eleven venture-backed companies went public in the first quarter, raising $768 million, an increase in activity from the eight IPOs that raised $711 million during the same period last year. These include HomeAway, Boingo and others.

Healthcare companies have been driving IPO activity the last six months accounting for 45% of IPOs in the most recent quarter and 57% of IPOs in the fourth quarter of 2010.Currently, 45 U.S. venture-backed companies are in IPO registration. The largest IPO for a U.S.-based company was the $107 million offering by Englewood, Colo.-based Gevo, a provider of biobased alternatives to petroleum-based products.
The median amount of venture capital raised prior to an IPO dropped 44% to $87 million in the first quarter of 2011. The median amount of time it took a company to reach liquidity fell to 6.2 years from 9.2 years in same period last year.

Of course, IPO activity, in terms of both scale and amount, could be on the rise as tech companies like LinkedIn, Facebook, Groupon, Skype, Pandora and a number of other companies are expected to enter the public markets this year.