IPO Activity Highlights

The largest IPO of the third quarter was the $270 million offering from Mindray Medical International Limited. Based in Shenzen China, the medical equipment manufacturer priced 20 million ADR’s (American Depository Receipts) at $13.5 a share. Backed by Goldman Sachs, Mindray also posted the largest first day gains of any venture-backed company that went public during the quarter, jumping 30% to close at $17.55 a share.

All industry categories experienced steep declines in volume. The perennial sector leader, Technology raised $480 million in public offerings, followed closely by the Life Sciences industry which captured $359 million. The Non-High-Technology sector priced one IPO that accounted for $95 million. 

While the overall volume levels were dismal, the performance of the third quarter offerings were encouraging. As of September 29, 2006, seven of the eight venture-backed companies that priced in the quarter were trading over their initial offering price. For the rolling 12month period, 58% of the venturebacked companies that went public are currently trading above their offering price. The statistics also revealed that the average offering size as well as the average post-offering values were at their highest levels since the third quarter of 2004.

In addition to the IPOs completed this quarter, there are currently 51 venture-backed companies “in registration” with the United States Securities and Exchange Commission. This compares favorably to the 41 companies in registration at the end of the second quarter of 2006.

The third quarter continued the trend of the previous quarter in which acquisition volume declined. The average disclosed deal size was $99.9 million, a slight decrease from second quarter’s average, but in line with the average deal size for third quarter 2005. Median deal size remained strong in the third quarter, with a median disclosed value of $60.0 million. This compares to a median disclosed deal size of $56.0 million in the first quarter, and $48.1 million in the second quarter 2006.

The Technology sector continued to dominate the venture-backed M&A landscape with 52 deals and a disclosed value of $1.6 billion. Within Technology, the Computer Software sector had 17 transactions, followed by the Internet Specific sector with 13 deals. Fifteen Life Sciences companies were acquired in the third quarter with a disclosed deal value of $802.7 million.

The largest disclosed deal of the quarter was the deal was the $365 million acquisition of Corus Pharma, Inc., a company that develops therapeutics to treat severe respiratory diseases, by Gilead Sciences, Inc. The second largest deal was R2 Technology, which develops analytical software aids for mammographic screening, being acquired by Hologic, Inc. for 237.1 million.

Acquisitions which returned more than 10x the amount of the original venture investment comprised 21% of the disclosed transactions for the quarter. At the opposite end of the spectrum, 38% of the disclosed acquisition deals returned less than the total venture investment. An equal percentage of deals – 38% returned 1-4x investment for the quarter.