Value of M&A deals soar 74% in Q3

IPO and acquisition values of venture-backed companies rocket in the third quarter

At Thursday night’s Vator Splash, keynote speaker and Eventbrite CEO Kevin Hartz predicted that the market, which was desiccated by the recession over the last couple of years, will now see the pendulum swing the other way. He seems to be onto something.

Mergers and acquisitions are on a sharp upswing, if third-quarter data are any guide.  The value of mergers and acquisitions for venture-backed companies was $5.7 billion in the third quarter, up 74% from the same period last year, according to the latest M&A and IPO report released by Dow Jones VentureSource.

The number of companies sold was 102, up 5% from the third quarter of last year, which means that deal values are on the rise.

Indeed, the average merger and acquisition deal was worth $27 million, up 23% from the year-ago period. 

Social gaming company Playdom accounted for the 2010 quarter’s largest acquisition as it was bought up by Disney for $563 million. 

IPOs are also on the rise, with IPO activity increasing five-fold from the same time last year.  The actual IPO valuations have increased by about 60%, with nine IPOs raising $723 million over the whole of the quarter, compared to the IPOs of the same quarter in 2009, which raised $572 million.  The largest IPO of this most recent quarter was the Monrovia, Calif.-based company Green Dot Corp, a provider of prepaid financial services, which raised $164 million. 

The year seems to be doing well on the whole, though it still remains far below the stellar explosions of 2007.  So far this year, venture capitalists have sold $17.74 billion worth of companies, up 75% from last year’s total at this time.

Ed Colloton, a partner with Bessemer Venture Partners, which backed Playdom before it was sold to Disney, explained that the upswing in the market can be traced to large tech companies that have matured and are looking for added growth by buying up younger, growing companies.  “Tech [stock prices have] outperformed the market generally and have tons and tons of cash on their balance sheet,” he remarked to Dow Jones.

Leading the troupe in number of venture-backed companies acquired is, unsurprisingly, Google Inc., which made four venture-backed acquisitions in the last quarter and 10 over the course of the year to date.  IBM, Facebook, and Zynga tied for second place, with each one making for venture-backed acquisitions so far this year.

While the market is certainly an improvement on 2008’s numbers (a tumbleweed rolling across a dusty road would be an improvement on 2008’s numbers), some are still concerned about the fact that the numbers are still nowhere near those of 2007.  In the first nine months of 2010, 32 venture-backed companies have held IPOs, which is not even half that seen in 2007, when 79 companies held IPOs.

“You used to be able to take a snapshot of what investors are looking for and if your company fit in that cookie cutter you'd have a good offering,” said Karin McKinnell, a senior managing director with Nasdaq OMX Group Inc, to Dow Jones. “The market seems open, then not so much, then open, then not so much.”

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