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U.S. venture-backed IPOs absent in second quarter

In a sign of the market malaise, not a single U.S. venture-backed company launched an IPO in the second quarter, according to a recently released venture capital report.

Update at 10:08 a.m. PDT, with additional statistics on IPO market.

U.S. venture-backed companies failed to launch a single initial public offering in the second quarter of 2008, a dire situation not seen since early 2003, according to the Quarterly U.S. Liquidity Report released Tuesday by Dow Jones VentureSource.

That's nada, zero, zilch.

And the mergers and acquisitions market for U.S. venture-backed companies did not fare much better in the second quarter, dropping 42 percent in the number of deals completed compared with the same time last year.

In the second quarter, 56 transactions generated $4.7 billion, compared with 97 deals raising $8.8 billion a year ago. According to the report, the number of deals completed in the second quarter of this year has not been this low for at least 10 years.

Overall, the combined effect of no IPOs and a substantial drop in M&A activity in the second quarter has resulted in a 47 percent drop in money raised through the sale or IPO of a U.S. venture-backed company.

"The broader pullback in the economy is affecting corporate spending and is clearly impacting the M&A market," Jessica Canning, global research director for Dow Jones VentureSource, said in a statement. "Corporations might be out looking for venture-backed companies to acquire, but many are either doing so quietly or choosing to hold off on entering into negotiations."

Since March, for example, 10 companies have yanked their IPO registrations. Currently, 22 companies still are registered to launch an IPO, but are waiting for the markets to improve before going out, Canning said.

This recent IPO drought is the second longest running session since 1992, with no IPOs for 103 days. The longest running session was 145 days that began back in Dec. 18, 2002, and continued through May 12, 2003.

Despite the recent malaise in the market, the amount of liquidity offered up to venture investors has shown some improvements over the past few years. Since 2005, the number of IPOs has steadily risen on an annual comparison basis, while the amount of funds raised via acquisitions has increased on a year-over-year comparison since 2002. And in the past two years, IPOs have historically had a strong showing in the fourth quarter, Canning noted.

Information technology mergers accounted for 73 percent of the number of completed deals in the quarter, with 41 transactions generating $3.3 billion. Time Warner's $850 million acquisition of social-networking site Bebo.com was the largest deal of the quarter. But IT deals overall declined 29 percent from the same time last year.

"We're at the mercy of the market right now," Canning said. "Unfortunately, we're just going to have to wait and see if the liquidity markets recover in the second half of the year."