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US venture-backed M&A stable

According to new research, US venture firms still find liquidity in the M&A market to do trade sales.

Venture-backed mergers and acquisitions in the US remained at a stable level for the third quarter 2001, according to statistics from VentureEconomics and the National Venture Capital Association.

While fewer deals were made – 70 compared to 78 for the second quarter – the total value increased by over $800m to $2.8bn. Average deal value increased $74.6m from $63.2m, constituting the first upswing in deal values since the fourth quarter 2000

However average transaction size was down compared with the same period a year earlier. Jesse Reyes, vice president at Venture Economics, said given the success of the industry depends on exiting at a multiple of the initial investment, “the decrease in average deal value is worrisome, but that deals are being done at all is encouraging.”

A large part of the overall increase can be attributed to the market’s renewed interest in life sciences. Six medical/healthcare companies were sold at a combined price of $321m, compared with four deals for just $9.7m in the previous quarter.

Also during the quarter three biotechology companies were bought for $277.5m, against $51m for deals in the previous quarter.

In other sectors, levels were similar to the previous quarter. The communications and media sector was again the dominant category based on volume, accounting for nine deals totalling $845m, compared with nine deals for $811m in the second quarter.

Mark Heesen, president of the National Venture Capital Association, said “although VCs are not able to sell portfolio companies at valuations they had hoped for, the current condition of the merger and acquisition market is allowing for liquidity.”

The internet sector saw the largest number of deals, but it was subdued, with none of the reported deals nearing the $100m mark. Activity in the semiconductor area remained constant – deal volume was down from $534.8m to $444.7m on five deals compared to four in the previous quarter. The total numbers of software transactions more than tripled to $238m, up from $72m in the prior quarter. The largest deal of the quarter at $421m was Nokia’s acquisition of the data communications company Amber Networks.