"This past year was marked by improving quality of both venture-backed IPO's and M&A transactions," said Mark Heesen, president of the NVCA. "In the coming year, we would like to uphold that quality while increasing quantity on both exit fronts. An ideal year would see more than one hundred venture- backed IPO's and 350 or more acquisitions. But we don't want to sacrifice quality to hit that threshold."
IPO Activity Overview
The Information Technology (IT) sector saw the majority of venture-backed companies come to the public market with 17 IPO's raising $1.5 billion during the fourth quarter. This activity represents an increase from the previous quarter when there were nine issues in the IT sector accounting for $684.5 million in proceeds. The largest IPO in the IT sector in the fourth quarter was Longtop Financial Technologies, Ltd.'s $182.6 million issue, managed by Goldman Sachs and Deutsche Bank. Longtop Financial Technologies, Ltd. is a software and solutions developer catering to the IT needs of rapidly developing financial institutions in China. Venture investment in the company totaled $48.2 million from Tiger Global and an undisclosed firm across two rounds.
The Life Sciences industry accounted for an additional ten venture-backed IPO's during the fourth quarter of 2007. The largest issue in this sector was the $98.0 million issue by Nanosphere, Inc., an Illinois based company whose Verigene System automates the analysis and ultra-sensitive detection of nucleic acids and proteins. Venture investors in the company include Allen & Company, Bain Capital, Brookside International Incorporated, Lurie Investment Fund, NGEN Partners LLC, and undisclosed individuals and investors. In total, these firms invested $80.1 million of venture capital in Nanosphere.
In full-year 2007, the IT sector accounted for the most venture-backed IPO's, totaling 47 issues and $6.0 billion in volume. Life Sciences followed with 32 issues and $2.6 billion in proceeds.
The Boston metropolitan region, followed by San Jose and Chicago, had the most venture-backed companies with IPO in the fourth quarter. In Boston, there was one IPO apiece in Communications and Media, Computer Software and Services, Semiconductors and Other Electric, and Biotechnology industries. In San Jose, there was one issue each in Computer Software and Services, Biotechnology, and Medical/Health sectors. Chicago, had offerings in Communications and Media, Semiconductors and Other Electric, and Biotechnology.
Foreign IPO's on US exchanges accounted for $933.0 million in proceeds in the fourth quarter, the highest proceeds since 1Q 2004 when two issues, led by the largest venture capital issue ever, Semiconductor Manufacturing International Corporation, raised $1.9 billion. The largest issue by proceeds of the quarter was by Chinese company China Nepstar Chain Drugstore, Ltd., a retail drugstore chain in China, which raised $334.1 million on the NYSE. GS Capital Partners, L.P. was the sole investor in this company.
For the full-year 2007, San Jose led the metro regions with 19 issues and $2.0 billion in funds raised by venture-backed companies which went public in 2007. The region accounted for 21.5% of the annual value of funds raised by companies in the US marketplace. Boston followed with 17 issues and $1.3 billion in volume.
As of December 31, 2007, 58 percent of the venture-backed companies that went public during 2007 were trading at or above their offering price.
Sixty venture-backed companies have filed for an initial public offering with the SEC since 2006 and are currently "in registration." This marks a decrease from the previous quarter when 72 venture-backed companies were in registration.
In addition to the U.S. market activity, ten companies that received US venture financing went public on foreign exchanges in the fourth quarter. Exchanges for these listings includes Bombay, Euronext Brussels, Hong Kong, London AIM, Madrid, National, Singapore, and Taiwan.
The largest IPO of the year was MetroPCS Communication Inc's $1.2 billion issue in April, the third largest issue of all time.
Merger and Acquisition Overview
In the fourth quarter of 2007, only 45 venture-backed M&A deals were completed, the lowest level since 1Q 1998, when 44 disclosed deals accounted for $3.1 billion in value. While deal volume was at a nine year low, average disclosed quarterly dollar volume reached $228.4 million, the higher average figure seen since the year 2000.
The Non-Tech sector dominated the venture-backed M&A landscape, with 5 deals and a disclosed total dollar value of approximately $2.2 billion. Information Technology industries saw the next highest disclosed dollar volume at $2.0 billion. Within this industry the Computer Software and Services sector reached $1.2 billion in disclosed deal value - 59 percent of the overall value within technology businesses. For full-year 2007, Information Technology targets dominated the M&A scene accounting for $13.6 billion in deals.
The largest disclosed deal of the quarter was the $925 million acquisition of Oxygen Media LLC, an internet and cable television programming network targeting women, by NBC Universal in October. The second largest deal was the $675 million acquisition of mainstream-energy services provider Cantera Natural Gas LLC by Copano Energy LLC completed in October.
The largest deal of the year was the $1.4 billion acquisition of Worldspan Technologies by Travelport, Inc., which occurred in the 3rd quarter. The next largest deal was the Oxygen Media deal mentioned above.
Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 47 percent of the total compared to 60 percent last quarter. Those deals returning less than the amount invested accounted for 21 percent of the quarter's total, up from 13 percent of the total last quarter. For the full year 2007, 43 percent of the M&A transactions returned more than four times the venture investment, compared to 36 percent in 2006. Twenty-five percent of the deals in 2007 had transaction values less than the venture investment compared to 2006 when 28 percent of the deals were valued at less than the venture investment.
