Mergers and acquisitions trending up, IPOs down

Reset in valuations, after Facebook IPO fiasco, may have helped bump up activity in dealmaking

Financial trends and news by Steven Loeb
July 2, 2012
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After the Facebook IPO disaster, it was reported that 13 companies, including Kayak, Tria Beauty, Corsair Components, CyOptics.Graff Diamonds, Formula One, and Vkontakte, the largest social media website in Russia, had all withdrawn its IPOs for fear of a downward trending market. The companies were seemingly afraid of what the market would look like, and for good reason.

In May, Bloomberg reported that its IPO Index, which tracks companies for a year after they go public, declined by 15% that month, the same decline the Index saw during the collapse of Lehman Brothers in October 2008, which many cite as the beginning of the current recession.

Indeed, IPOs have been down in recent months. But on the positive side, mergers and acquisitions (M&As) are trending upward, according to the latest report from Dow Jones VentureSource.

The second quarter of 2012 saw only 11 venture-backed companies in the United States go public, down from 20 the previous quarter, but those 11 companies raised $7.7 billion through its IPOs, an increase over the $1.7 billion raised by 14 IPOs in the first quarter of 2011.

The quarter also saw 110 M&As of venture-backed companies in the United States. While the overall number of deals were down 6% from the same quarter in 2011, it is still up from the 98 in the first quarter of 2012.

Despite the worsening European crisis, and the terrible Facebook debut, the increase in M&As from the previous quarter could indicate good things are on the horizon, Jessica Canning, global research director for Dow Jones VentureSource, said in a release.

“The silver lining this quarter may be M&A as deals are up slightly over the first quarter and have a solid start for the third quarter when Microsoft’s acquisition of Yammer is expected to close.”

Some 47 of the mergers and acquisitions came from information technology (IT), which, together, raised $5.3 billion.

The top five consumer internet deals were Facebook’s purchase of Instagram for $1 billion; GREE buying Funzio for $210 million; Bazaarvoice purchasing PowerReview for $168.2 million; LinkedIn’s acquisition of SlideShare for $118.75 million; and Google’s purchasing of Meebo for $100 million. 

So what can possibly account for the pendulum swinging back so soon after what happened with Facebook?

It say be surprising to hear but Valerie Foo, senior research manager at Dow Jones VentureSource, says that the Facebook IPO might have actually been a good thing, as it just might have set expectations back to the normal.

“Entrepreneurs and corporate buyers were not seeing eye-to-eye on price but Facebook’s IPO delivered a dose of reality. The uptick in M&A may be a result of entrepreneurs resetting their valuations so that they’re now in line with what acquirers are willing to pay,” Foo told VatorNews.

While IT was soaring, healthcare saw a big drop in the second quarter, going from 25 acquisitions to 18. A big part of this was attributed to uncertainty over regulations, which will hopefully become less of a concern now that the Supreme Court has ruled on the Affordable Care Act.

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