Venture Capital Exits – Trade Sales - March 2013

by Jonathan Parker

  • 14 Mar 2013
  • PE

While the initial public offering is often regarded as the most prominent type of venture capital exit, Preqin’s Venture Deals Analyst shows that trade sales are a far more common way for investors to exit their stakes in a company. Since 2008, there have been 219 initial public offerings valued at $38bn. However, across the same period, 2,184 venture capital-backed companies have been exited via corporate acquisitions, for a total of $151bn.

The most active year for trade sales since 2008 came last year, with 504 exits announced in 2012. This represents a significant increase compared to the 439 trade sales announced in 2011 and continues a general upward trend in the number of these exits since 2008, which saw 341 such divestments announced. The aggregate value of trade sales also followed an upward trend between 2008 and 2011, increasing year on year from $19bn in 2008 to $43bn in 2011. 2012 saw a drop in aggregate value to $32bn, although this is still higher than all other years except 2011, and is mainly because the two largest trade sale exits across the period occurred in 2011.

The average value of trade sales also peaked in 2011, at $258mn. This is nearly double the average of $133mn in 2008 and is significantly higher than the $183mn and $180mn witnessed in 2009 and 2010, respectively. As with aggregate value, the average value fell in 2012 to $190mn, which again is primarily due to the occurrence of two mega-sized trade sales in 2011.

Taking a ratio of the average exit value to the average of the portfolio company’s total known funding, 2011 once again comes out on top, with an average exit value of 8.2x funding. Companies exited in 2008 via trade sale had, on average, received $38mn of funding but saw a multiple of 3.5 due to a low average exit value. In the following year, companies exited had received an average of $29mn in funding but, because of a larger average exit size, saw a 6.3x multiple. This rose to 6.6x in 2010, while 2012 saw a slightly lower multiple of 6.3x. Thus, with 2012 representing the strongest year for trade sales in terms of number, it remains to be seen whether 2013 will continue this upward trend and also provide a recovery in aggregate exit value.

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