Improving VC Exit Opportunities - Part 2

Will Venture-Backed M&A Exits Rebound in 2010? Strategic acquirers' appetite for M&A opportunities is improving steadily. The economic downturn drove buyers and sellers to cut costs, conserve cash and focus on their core businesses in order to survive. The result was a significant and prolonged reduction in the number of transactions (venture-backed M&A exits highlighted in the chart below). With an easing of economic pressures we expect transaction volume to increase. Having rationalized their businesses over the past year, potential buyers will re-enter the market, and investors with longer holding periods will seek to take advantage of improving market conditions to generate investment returns.

A Case of Evolving Expectations. Investors and business owners have had to adjust their expectations to match the ongoing business climate. As credit markets seized up and the economy went into recession, stock market volatility spiked to unprecedented levels, making planning and investment decisions very difficult. As volatility has dropped and leading economic indicators have trended consistently upwards - the gap between acquirers' and sellers' views on projections, profitability and valuations have begun to narrow.

We believe there will be an increase in 2010 to normal activity levels for middle market M&A. It is critical for those seeking growth capital, shareholder liquidity and strategic partnerships to have positioned themselves to be able to react quickly to opportunities. Investors and acquirers will, for some period of time, have the advantage of being very selective about their investments and acquisitions. The key to successfully completing a transaction will be advanced preparation, superior positioning and well-supported valuations. As is always the case for sellers, more than one interested M&A suitor will be extraordinarily valuable when negotiating for full value and fair terms.

IPO and M&A Data: Thomson Reuters and National Venture Capital Association