Mergers, IPOs continue to droop
Companies backed by venture capital have a tough first quarter as mergers, acquisitions and IPOs slide, according to new research.
Only five companies managed to launch an IPO during the first quarter, raising an anemic $467.5 million, according to venture research company VentureOne. That was the first time in two years that less than $1 billion was raised during a quarter.
The results are the latest example of the markets' continued malaise and the challenge venture fund investors are encountering in gaining a return on their investments.
Last year, during the markets' heady period, 70 venture-backed companies hit the public markets in the first quarter and raised $7.5 billion. In the fourth quarter, 16 IPOs debuted, raising $1.4 billion.
Among the small pool of IPOs, many of which came from the health care sector, only one Internet company, Loudcloud, managed to go public. The company, which raised $150 million, rose a meager 3 percent on its first day of trading but fell below its $6 offering price by the fifth day.
Though Loudcloud was able to launch its offering, 36 other Internet companies could not and withdrew their filings, according to VentureOne.
Mergers and acquisitions also took a beating in the first quarter.
Seventy-five deals were completed during the quarter, with the value of the transactions dropping by a whopping 45 percent to $6 billion compared with the previous quarter. It also marked the second consecutive quarter to post a decline.
Mergers and acquisitions fell to 83 deals in the fourth quarter, valued at $11 billion. That was down from a peak of 106 deals in the third quarter, with a value of $20.2 billion. A year ago, venture-backed companies were involved in 114 buyout deals in the first quarter, with the value reaching a whopping $44.9 billion.
With the markets' downturn, fewer public companies can use their cash as currency to purchase companies, researchers say.
"When the market recovers, the pace of acquisitions may accelerate, but the amount paid in those transactions won't necessarily return to the levels we saw last year," VentureOne Research Director John Gabbert said in a statement.
Gabbert believes the environment will improve for IPOs and buyouts of venture-backed tech companies.
"I would imagine IT liquidity would have to get better. It can't get much worse," Gabbert said. "But I don't anticipate valuations coming back that quickly and returning to historical highs."