Seventeen venture-backed companies raised $1.6 billion through initial public offerings (IPOs) and 78 venture-backed acquisitions were reported in the fourth quarter of 2005, according to Thomson Venture Economics and the National Venture Capital Association (NVCA).
The fourth quarter exit activity mirrored the full year 2005 which was characterized by a significantly weak IPO market propped up by a stronger acquisitions market. For the full year 2005, fifty-six venture-backed IPOs raised a total of $4.5 billion representing a 40% decline in volume from 2004 while the acquisitions market saw 330 transactions with a disclosed value of $14.4 billion, similar to the previous year.
Mark Heesen, president of the NVCA, the venture capital exit market was characterized in 2005 by a lackluster IPO market, which can be attributed to a number of factors.
“For the IPO market to improve, we need relief from certain hurdles associated with the Sarbanes-Oxley Act, but we also need an investing public that is bullish on technology,” Heesen said. “Most [investors] have survived the boom and the bust, which speaks to the soundness of their business models and the strength of their discipline.”
Hessen also predicts that “once the market begins to accept these organizations and that is reflected in their share prices, emerging companies will consider the IPO path once again.”
The fourth quarter of 2005 was dominated by the technology sector, which saw ten venture-backed IPOs raise $1.1 billion. The technology sector also contained the largest IPO of the fourth quarter and the year, with IntercontinentalExchange, Inc.’s $415.9 million offering.
The second largest IPO of the quarter, DealerTrack, Inc., was also from the technology sector, raising $170.0 million.
The life sciences sector had five venture- backed IPOs raise a total of $191.2 million in the fourth quarter. The largest Life Sciences IPOs in the quarter were NxStage Medical, Inc. and Somaxon Pharmaceuticals, Inc., which both raised $55 million.
In 2005, the technology sector saw 26 venture-backed companies raise a total of $2.6 billion, with the Internet Specific category leading the sector with ten IPOs raising $1.3 billion. The life sciences sector saw 23 companies raise a total of $1.2 billion, while Non-high Technology had seven IPOs raise $727.6 million.
The two largest IPOs of 2005, IntercontinentalExchange, Inc. and OptionsXpress, Inc., were from the technology sector. The third largest venture-backed IPO of the year, Focus Media, came from the Non-high Technology sector. As of December 30th, 33 of the 56 companies, or 59%, were trading at or above their offering price.
Venture-backed merger and acquisition activity remained strong for the second consecutive year, carrying forward the recovery from the post-bubble trough. Based on data collected as of December 30, 2005, the number of transactions for the year held steady at 330 compared to 339 in 2004. The average disclosed deal value rose in 2005 to $91.5 million from $83.4 million in 2004.
The software sector saw the most transactions in the fourth quarter at 24, followed closely by the internet-specific sector at 20. These sectors also hold the number one and two positions for the full year 2005 at 109 and 76 deals respectively. Life sciences, which includes biotechnology and medical devices, saw 15 deals in the fourth quarter and 58 deals for the full year.