After two downbeat years for the venture capital industry, April Fools' Day brought some good news.
Venture capitalists had their busiest quarter in recent memory, with nine venture-backed companies going public and a record-breaking 111 companies changing hands in mergers and acquisitions according to a report released Thursday by Thomson Reuters and the National Venture Capital Association.
The momentum was decidedly upward. Sunnyvale-based Meru Networks' Wall Street debut Wednesday won positive reviews from investors that again seem eager for initial public stock offerings. Eight of the nine companies that debuted during the quarter were trading on Wednesday at or above their offer prices.
Meanwhile, the average value of 31 disclosed venture-based M&A deals was $180.2 million — 21 percent higher than the average transaction value for all disclosed deals in 2009, according to the report.
In the quarter's largest deal, Ethicon acquired Menlo Park-based Acclarent, a developer of surgical devices, for $785 million.
The 111 M&A deals — including 81 in the information technology sector — were the most since such record-keeping began in 1975. The activity reflected a shopping spree in which companies that thrived despite the recession were able to acquire technology from financially weakened companies.
IPOs and M&A deals are known as "exits" in industry parlance, because they allow venture firms
to convert their equity stakes into cash to provide returns to limited partner investors, realize their own profits and raise new funds based on previous success. Such exits were few and far between in 2008 and 2009 amid a recession exacerbated by the financial industry crisis.
"The exit activity "... has engendered a cautious optimism within the venture capital industry," National Venture Capital Association President Mark Heesen said in a news release. The IPO volume, he said is "not nearly enough to declare a recovery," but the interest of investors and the number of companies in registration for IPOs are encouraging signs.
The whopping number of M&A deals "is also encouraging as the quality of these transactions appear to have held strong," Heesen added. "It is premature to suggest we have permanently turned the corner, but that corner is in sight and within reach."
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