Thomson Reuters and the National Venture Capital Association today released a press release with the following headline: “Venture-backed acquisitions continue at record pace as IPOs hold steady.”
The second part sounds right, but the first part made me sit up and take notice. A “record pace” for acquisitions of U.S.-based, VC-backed companies? Really? Is it all attributable to AOL?
Seems the “record” applies to the number of acquisitions through the first three quarters of any year. There have been 322 so far in 2010, compared to 199 through the first three quarters of last year, 285 through the first three quarters of 2008 and so on. Moreover, the final 2010 tally looks poised to wrest the crown from 2007, when there were 379 acquisitions of VC-backed companies.
A deeper dive, however, mutes the triumph a bit:
If you divide the total disclosed value of deals through the first three quarters by the total number of deals, you find that 2010 is lagging each of the past several years. For example, this year’s $38.38 million per deal mark is a far cry from the $77.73 million per deal in 2007 or last year’s $78 million per deal.
In other words, companies are selling for less.
“But wait,” implores a rhetorical reader, “Shouldn’t you only be dividing the total disclosed deal value by the number of deals actually disclosing their values? If you do so, you find that 2010 deal values are comparable to 2007 and surpass most other years.”
True, convenient reader, except that there is selection bias in the disclosed numbers. First, sellers typically brag about big exits and keep mum on the size of small ones. Second, public acquirers only are required to disclose deal values when they are “material.” Do you know what isn’t material to Cisco or Google or Johnson & Johnson? A $1 million acquisition.
When I look at the 2010 data, what I see is an unusually high number of deals with undisclosed values.
Between 2004 and 2009, values were disclosed for approximately 45.3% of all VC-backed trade sales. In 2010, the figure stands at just 21.7 percent.
Seems like lots of people have lots to hide. In fact, one might even call it a record …