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The Give and Take of Stocks

Tech companies top the list in IPO and M&A deals.

A resurging market for IPOs is reducing the number of M&A deals but raising prices for acquirers. Data from Dow Jones VentureOne, a financial information tracker, shows that 22 venture-backed companies went public in the second quarter of 2007.

That was 38 percent more than in the second quarter of 2006. The combined value of the IPOs more than doubled to $2.73 billion. Valerie Foo, research manager at Dow Jones VentureOne, says for technology and health sciences firms, which dominated the IPO market in both the number and size of offerings, it was the best quarter since 2000.

But the number of M&As fell to 81, 27 percent below the same period last year, and the total dollar volume of M&A activity also dropped slightly. Because there were fewer M&A deals, their average value rose from $41 million last year to $55.8 million this year.

What's happening, Foo says, is that companies that might have been acquired last year are going public this year. "Typically, the IPO market is favored," she says, "so a lot of companies are taking advantage of that at this point in time."

Tech companies also dominated the M&A scene in the second quarter of 2007, accounting for 3 out of 4 companies sold. By comparison, 11 health-care companies were acquired, as well as two energy companies and nine in the business, consumer and retail category.

The biggest sale of a venture-backed company was the $800 million acquisition by Microsoft of Tellme Networks, a VoIP company. By comparison, the largest IPO was MetroPCS, a Dallas wireless telephone operator, which raised $862.5 million through its IPO, Dow Jones VentureOne reported.

For now, the M&A route that was the most popular path to liquidity for fast-growing tech companies in recent years appears to have been supplanted by selling stock to the public.

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This article was originally published in the November 2007 print edition of Entrepreneur with the headline: Give and Take.

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