Venture-Backed Buyouts at Record Volume as Increasing Pace of Exits Mark Possible Recovery

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Initial public offerings and acquisitions surged for venture-backed companies during the fourth quarter of 2010. The results suggest a recovery in the overall pace of “liquidity events” since the capital crisis of 2008, which triggered a painful economic recession throughout the U.S. and elsewhere.

Most of the IPO activity was driven by Chinese companies going public on U.S. exchanges, according to a report by Thomson Reuters and the National Venture Capital Association (NVCA). But there are signs of overall improvement as the post-IPO performance of venture-backed companies strengthened, along with acquisition values in 2010.

The report counted 32 venture-backed IPOs with a total value of nearly $3.6 billion during the last three months of 2010—almost three times the 12 IPOs that took place during the full year in 2009. Of those 32 deals, 17 were ventures based in China, including SinoTech Energy, a Beijing-based provider of enhanced oil recovery services that raised almost $168 million on the Nasdaq exchange.

Altogether, the report counted 72-venture-backed IPOs for full-year 2010—a six-fold increase over 2009. Another 42 venture-backed companies have currently filed with the Securities and Exchange Commission for an initial public offering, according to the report.

In a statement from the NVCA, president Mark Heesen says, “In 2010 we moved from ‘abysmal to viable’ in the venture-backed IPO market. The number of offerings has improved in large part due to Chinese venture-backed companies going public on U.S. exchanges. We would like to see U.S. company IPOs grow at this pace in the coming year.”

The report also counted 88 venture-backed M&A deals during the fourth quarter, which was a decline from the 111 M&A deals reported during the previous quarter, but nevertheless brings the total number of venture-backed acquisition deals to 420 for the year. That’s the highest deal volume since 1985, when such record keeping began. Total valuation (for the 120 deals in 2010 in which the valuations were disclosed) amounted to $18.3 billion, still far short of the $29.5 billion total disclosed for 169 deals in 2007.

Data released this morning by Dow Jones VentureSource also shows a strong uptick in exit activity, although the numbers vary from the “Exit Poll” released today by the NVCA and Thomson/Reuters.

Dow Jones said 14 IPOs raised about $1.1 billion during the fourth quarter, bringing the totals to 46 venture-backed IPOs and $3.4 billion for the full year in 2010. The annual total was more than five times the eight IPOs that raised $903 million in 2009, according to Dow Jones.

In M&A activity, Dow Jones said 109 companies were acquired for a total of $10.5 billion in the fourth quarter, a 7 percent decline in mergers and acquisitions from the same quarter last year. Dow Jones said 445 deals raised $33.9 billion for the entire year, and represented a 17 percent increase in deal activity in 2009, when 381 deals raised $20.8 billion.

“Exit activity is staging a comeback but capital netted lagged as large M&As and IPOs were still uncommon in 2010,” said Jessica Canning, director of global research for Dow Jones VentureSource, in a statement released this morning.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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