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Emily Mendall, NVCA
Joshua Radler, Thomson Venture Economics
May 5, 2005
New York, NY, May 4, 2005 –Disclosed valuations for venture-backed mergers and acquisitions
rebounded in the first quarter of 2005 to the highest average deal size since 2001, according to Thomson Venture Economics and the National Venture Capital Association. The most recent figures show that, at 77 companies, slightly fewer deals were closed than in the previous quarter. The total reported value for the quarter jumped significantly with 44 companies reporting an aggregate transaction value of $4.2 billion. In the fourth quarter 85 deals closed, with 47 accounting for $2.8 billion.
These figures represent a 50% increase in disclosed M&A valuations over the fourth quarter. When
compared to the first quarter of 2004, when 44 deals out of 78 attracted $3.9 billion, it is a 7% increase in aggregate value. This increase occurred amidst a lackluster IPO market in Q1 when only 10 companies
went public for $720.7 million, the lowest level of IPO activity since the third quarter of 2003.
“Now more than ever, venture-backed companies are looking at the M&A market as the more viable exit option,” said Mark Heesen, president of the NVCA. “This strategy is driven by strong valuations as
evidenced in this last quarter, as well as higher regulatory and market hurdles in the IPO market. If a
company can return four times or more the original investment by being acquired, this exit makes a
tremendous amount of sense. If this trend line continues, it will be a very solid year for M&A.”
Software companies continued to comprise the majority of the deals, with 28 out of 77. Compared to the fourth quarter this sector experienced a turnaround in terms of total reported value, increasing to $846.1 million over last quarter’s $401.1; and in average deal sizes, this quarter’s $52.9 million average over the fourth quarter’s $28 million. The quarter’s largest software deal was also the sixth largest across all sectors – infrastructure analysis software developer System Management ARTs was acquired by EMC Corporation for $260 million. The Biotechnology sector accounted for the largest portion of the quarter’s total disclosed value, with 4 deals out of 5 reporting $1.2 billion. This is a massive jump from last quarter when 5 targets reported only $241 million in total transaction value. The sector’s performance is directly attributable to the attractiveness of pharmaceutical targets. Three of the top five deals of the quarter were in pharmaceuticals. The largest deal was ESP Pharma at $485.8 million; Xcel Pharmaceuticals was fourth with $324 million, Syrrx was fifth at $270 million. Rounding out the top five were Airespace Inc, second at $450 million and Viva Inc, third at $415 million.
Daniel Benkert, Senior Analyst at Thomson Venture Economics stated, “The late decline in activity in 2004 was an aberration. The first quarter total reported value and average deal valuations suggest a continued strengthening of the M&A market. The life sciences sector performed particularly well, as an acquisition is in many cases a more viable strategy, given recent IPO performance for the industry. Still, it was the broad-based increase in deal values across all sectors that point to sustained activity in this market.”
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 Venture Expert™ database. For over 35 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.
About 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, The Thomson Corporation lists its common shares on the New York and Toronto stock exchanges (NYSE: TOC; TSX: TOC).
About NVCA
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 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
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