VC-backed M&A shifts to smaller deals

Although large venture-backed acquisitions like WhatsApp and Nest Labs have dominated the headlines, most deals so far in 2014 are modest in size.

That’s one of the takeaways from a VCJ analysis of VC-backed M&A activity for the first four months of the year.

Through the end of April, there were 58 venture-backed M&A deals completed with disclosed purchase prices, for a combined aggregate value of more than $11.6 billion.

That total represents a 77 percent increase in disclosed acquisitions from the same four-month period in 2013, when 40 VC-backed M&A deals took place for a combined value of about $6.6 billion, according to Thomson Reuters (publisher of VCJ).

Average M&A deal size through April totaled nearly $201 million, compared to $165 million per transaction during the same period in 2013.

Thus, at first glance, it may seem like deal sizes are on the rise.

But the aggregate and average numbers are inflated by a recent pair of outsized deals.

The largest venture-backed M&A transaction that closed during the first four months of the year was Google’s $3.2 billion purchase of Nest, a Palo Alto, California-based provider of home hardware products, such as smart thermostats and smoke detectors. The company had raised $80 million in venture funding from Google Ventures, Kleiner Perkins Caufield & Byers, Lightspeed Venture Partners, Shasta Ventures, Venrock and others.

VMware’s $1.5 billion acquisition of Atlanta-based AirWatch ranked as the second largest venture-backed M&A deal during the period. The company, which provides mobile security services, raised $180 million from Accel Partners and Insight Venture Partners.

Facebook’s $19 billion cash and stock acquisition of WhatsApp was not included. That deal, announced in mid-February, is not yet completed.

However, if the Nest and Air Watch deals are removed from the year-to-date totals, the cumulative size and the average price drops precipitously. Without those two large deals, the other 56 transactions through the end of April totaled $6.9 billion, for an average purchase size of $123 million.

Jacob Mullins, co-founder and CEO of Exitround, a matchmaking site for early-stage companies and potential acquirers, said he sees many more deals taking place that are below $50 million in value. In fact, of the 58 transactions that Thomson Reuters reported took place through the end of April, just over half, or 31, were $50 million or less in size.

Mullins said that when Exitround was launched in March 2013, it was more focused initially on acqui-hires, or talent acquisitions, which are typically of companies a year or so old and with just a few million dollars or less of venture capital. But he said the average age of companies looking to sell via Exitround has increased over time. Mobile-focused companies represent more than 22 percent of the potential selling companies on Exitround. That is the largest group, followed by social (15.3 percent) and enterprise (10.4 percent).

Mullins said than more than 1,200 companies, including 160 publicly traded corporations, are poring over Exitround’s database, looking for potential acquisitions.

“Small exits are good exits,” Mullins said. “We’re not going to be involved in Google buying Nest, but there is a long tail number of sub-$50 million acquisition deals out there.”

Mullins said his site has helped facilitated several acquisitions since he launched last year, not all of which have been disclosed. The disclosed acquisitions include Live Nation’s purchase of Meexo, which was backed by undisclosed angel investors.

The accompanying table shows the 58 disclosed acquisitions of VC-backed companies through the end of April, according to Thomson Reuters.