M&A in venture capital is strong

We received Dow Jones VC Edge report for Q2 2019.  The data is excellent and shows the trends in venture capital.   Below is a breakdown of M&A in venture.  Note that LTM means ‘last twelve months’.



M&A of venture backed companies is strong.  Looking at the total value of M&A transactions on an LTM basis, the $128bln worth of deals done in the past 12 months is down versus the past two quarters but still up 13% when looking at the LTM period ended Q2 2018.  The M&A market for venture backed deals has been growing at a healthy clip since Q2 2018.  It’s a good trend for venture investing and startups.


We’ve never seen more deals.  In Q2 2019, 198 M&A transactions were done and on an LTM basis, 743 transactions were done.  Both are highs.  It’s a great milestone and on a year over year basis, the number of deals done has increased almost every year since Q2 2016.  This shouldn’t be surprising given the amount of venture dollars invested has increased dramatically over time ($140bln today versus $73bln for the LTM period ended Q2 2015 for instance).


Average deal size has climbed.  The average M&A transaction was $173mm on an LTM basis.  Note this figure has fluctuated over time.  Note the chart shows a general upward trend but the range is wide ($120mm to $180mm).


It takes 7 deals to get an exit.  This is rough math, but we looked at the number of deals done 3 years ago and 4 years ago compared to the number of exits today.  The typical hold period for any venture deal is 5 years on average (funds usually have a 5 year investment period and 5 year harvest), so it’s fair to assume a typical exit will take 3 to 4 years.  Based on that logic, there is 1 exit for every 7 deals done.


Investment has surpassed M&A values.  We looked at the level of M&A on an LTM basis compared to the level of VC investment in that year.  Ideally, the industry is getting back more money from M&A than you’re investing in any given year.  The figure has pretty wide swings, but in the latest quarter it was 0.91x.  In other words there was 91 cents of M&A done in the last twelve months for every $1 of new venture investment in the last 12 months.  This is healthy enough, but again, the industry needs to be over 1x.  Note that the average for the periods shown is 1.16x.


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