Third Quarter MA Activity Sees Marginal Drop –

NEW YORK – While initial public offering activity has experienced a significant decline since last year-just 13 offerings managed to get out of the gate in the third quarter compared with the 127 offerings that made it from the pipeline to the trading floor for the same period last year-venture capitalists seeking viable exit strategies need not lament, because that drop-off has given way to a relatively healthy M&A market.

Seventy venture-backed M&A transactions were closed from July to September, according to third quarter figures released last month by Venture Economics and the National Venture Capital Association. While the third quarter numbers are down a smidgen from the previous quarter-a total of 78 M&A deals were completed in the second quarter of 2001-they’re still higher than last year’s third quarter, which saw just 62 M&A deals.

However, the average per-deal valuation has come down quite a bit since last year. In the third quarter of this year, the average deal was valued at a meager $75.6 million, compared with $175 million per deal for the third quarter last year.

Still, the decrease did not seem to surprise the experts, given that valuations are down all around due to the flagging economy.

“With the IPO market all but shut down, sales by merger or acquisition are the way that VCs are exiting nowadays,” said Jesse Reyes, vice president with Venture Economics. “Valuations of all deals in the capital markets have been falling off, so it’s no surprise that the average value of M&A transactions have taken a nose dive as well.”

The life sciences sector saw the most activity throughout the quarter with six venture-backed medical/health-care companies being sold for $321 million.

Compass Group PLC’s purchase of Crothall Services Group, a provider of outsourced services to heath-care institutions, for $170 million was one of the biggest deals of the quarter.

Three biotech companies also were acquired in the third quarter of 2001 for $227.5 million, versus $51 million for the same number of companies in the second quarter.

Although it accounted for the largest share of deal volume, the Internet-specific sector was quiet for the most part. None of its reported deals neared the $100 million mark, and its total deal volume was $540 million, an increase of only $127 million from the previous quarter.