Spending on acquisitions of US public companies has more than quadrupled so far in 2010 from last year's recessionary levels. However, the amount is still just one-quarter what it was in more-vibrant times.
The first quarter is in the books and it’s hard to read much from it, at least in terms of M&A. While the quarter saw more deals announced than any other quarter since the credit crisis erupted, the aggregate spending on those transactions is lingering about one-third below the recent average. In the just-completed quarter, The 451 Group recorded 841 acquisitions, with a total transaction value of $31 billion. (We should note that nearly one-third of the M&A spending in the quarter came on a single telecom deal, where an Asian operator spent $9 billion on mobile businesses in Africa just two days before the end of the quarter.)
Overall, the numbers point to an inconsistent recovery in the M&A market. On the one hand, many of the big buyers were busier than ever. CA Inc, Google, IBM and Oracle (among others) all announced at least three transactions in the just-completed quarter. But on the other side, we also saw a number of deals that continued the worrisome trends that we thought we might have left behind in 2009, with additional scrap sales and low-multiple divestitures in the first few months of 2010.
The IPO market may be sputtering back to life, but the offerings look quite a bit different from the pre-recession IPOs. For one thing, the sizes are smaller. More important, the companies aren't being valued quite as high from the start.
The House's passage of the Senate's major health-care bill could clear the way for M&A deals throughout the healthcare sector (including software and IT) as a key overhang is removed, providing acquisitive companies with more clarity of the future business environment. The bill, assuming it is signed, will provide coverage to more patients, increase Medicare's prescription drug coverage for many, and ensure long market exclusivity for biologic drugs. It will likely translate into more people consuming drugs, and the newest, most expensive therapies having protection from competition for a long time. Healthcare companies and its customers will require electronic medical records and greater reliance on technologies in order to stay competitive and increase efficiencies.
The Bottom-Feeding Frenzy Is On
Startups in record were sold off in the first quarter of 2010, marking the largest number of venture-backed companies to change hands since the National Venture Capital Association began tracking in 1975.
"The exit activity in first quarter of 2010 has engendered a cautious optimism within the venture capital industry,” said Mark Heesen, president of the NVCA, in a statement.
For the quarter ended March 31, 111 venture-backed were sold in M&A transactions compared with 64 deals in the same quarter a year ago. The average disclosed price companies went for was $180.2 million, according to the report. Leading the boom was IT with 81 transactions worth a combined $2.3 billion. Life sciences came in at No. 2 with 21 deals reaching a combined $2.9 billion.
IPO’s showed signs of life as well, according to the report.
The first quarter of 2010 saw nine venture-backed IPOs come to market valued at $936.2 million, a figure that compares with zero IPOs for the same quarter a year ago. The largest IPO of the quarter went to Ironwood Pharmaceuticals, which raised $187.5 million. Also, initial public offerings were continuing to trade above water post-IPO. Of the nine that went public, eight were trading at or above their offering price as of March 31.
Period | Deal Volume | Deal Value |
Q1 2010 | 841 | $31 B |
Q4 2009 | 822 | $55 B |
Q3 2009 | 758 | $38 B |
Q2 2009 | 778 | $49 B |
Q1 2009 | 663 | $10 B |
Source: The 451 Group
The full report can be downloaded (free) here: http://www.generationequityadvisors.com/files/GEA_Quarterly_Update_Q1_2010_.pdf
