The report showed that information technology companies accounted for the bulk of the capital raised via M&A with 64 transactions accounting for at least $7.4 billion, a 64% increase for the segment over the third quarter of 2006. As usual, software companies were an acquirer favorite, as 37 of these companies garnered almost $5.4 billion from M&As, more than double the amount raised by the segment during the same time last year.
Only 12 venture-backed health care companies participated in M&As - down from 23 in the third quarter of 2006 - but they raised $2.3 billion, a 9% increase over last year. Of note was the $2.1 billion paid for nine biopharmaceutical companies, nearly the second-highest quarterly total on record for the segment. Ten companies in the business, consumer and retail sector completed M&As in the third quarter of 2007, raising $818 million. That is 36% less than the nearly $1.3 billion raised in 18 M&A transactions for the sector in the third quarter of 2006.
The data found that, of the 11 IPOs completed in the third quarter, seven were for IT companies, which raised a collective $488 million, a 9% dip from the same period last year. Three venture-backed health care companies went public in the quarter, raising $131 million collectively, more than double the amount raised in two health care IPOs in the third quarter of 2006. All of this brings the total number of venture-backed IPOs to 48 for the year. However, the report also revealed that the third quarter saw another 46 venture-backed companies register to be taken public.
"As the recent IPO registrations show, venture capitalists are making good on their pledges to take advantage of the favorable liquidity markets," said Ms. Canning. "Most notable is that 22 venture-backed health care companies have filed to go public. If these offers are completed, it would be far and away the most IPO activity we've seen in the health care sector since the third quarter of 2000 - and a clear shift in exit strategy away from M&As."
Even so, the report found that, for the third quarter in a row, venture capitalists garnered top dollar for health care companies, with the median post-valuation at M&A reaching $125 million, double the median seen during the same time last year. The median post-valuation for IT companies sold during the third quarter reached $83 million, not as high as health care but still the largest figure seen since 2000. However, it took more money to make more money, as the median amount of venture capital raised prior to M&A jumped to $47 million for health care companies in the third quarter, compared to just $20 million for IT companies.
The overall median post-valuation for an acquired company reached $90 million, a high-water mark not seen since 2000. In contrast, the median amount raised at IPO during the quarter was $62 million, down 27% from the median of $85 million raised during the third quarter last year, while the amount of venture capital investor prior to an IPO climbed to $61 million in the quarter.
In fact, the largest M&A - the $812 million acquisition of interactive advertising firm Right Media by Yahoo! - was more than all the capital raised via IPO during the quarter. The largest IPO of the quarter belonged to medical software company athenahealth, which raised $90 million in its NASDAQ debut.
In addition to requiring more capital, it is also taking longer to exit portfolio companies. The report showed the time between initial equity financing and M&A also reached its highest level ever in the third quarter at seven years. It was a similar story for companies going public, as the median time between initial equity financing and IPO reached a record 8.5 years in the third quarter.
