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PE & VC News

It may seem like an innocuous question.  On the one hand, why would venture capital companies add value to an IPO?  Perhaps the presence of venture capital companies could drag down the value of a company’s IPO because the market could view such presence as venture capitalists attempting to exit from a “peaking” investment.  On the other hand, the presence of venture capitalists could signal to would be investors that the soon-to-be public company is a company with a bright future – after all, the venture capitalists are putting their reputation (and money) on the line.

In a recent draft publication from professors out of Boston College and Northeastern University, the authors find that the presence of venture capital firms at an IPO offering may actually add value to the IPO.

A Review of What the Authors Did

The authors gathered a dataset of pre-IPO media covereage as a proxy for investor attention.  They then statistically tested whether IPOs of venture capital-backed companies garnered greater or less attention.  They also tested the effect of venture capitalists on the absolute value of price revisions.

The Theory Before Going Into Their Findings

The authors argued that venture capital-backed firms (and thus venture capitalists themselves) may add value to the private firms in which they invest through two main mechanisms related to information dissemination.

The first is that venture capitalists may provide a valuable backdrop to IPO underwriters by garnering “investor attention.”  Essentially, venture capitalists assist the IPO underwriters by helping with the book-building and road-show process, in that the presence of venture capitalists is desirable from the perspective of potential institutional investors when institutional investors are evaluating noisy information and other aspects of the pending IPO.

Second, venture capitalists help with information extraction in that venture capitalists provide the lead underwriter valuable information in pricing the pending IPO (for the moment, one can disregard the perverse incentive venture capitalists have in pricing the IPO).

What They Found

Interestingly, the authors found that the presence of venture capitalists before and during the IPO process does, in fact, add value to the soon-to-be public company.  The value-add comes in the form of increased investor interest in the pending IPO, as well as the pricing trend of the soon-to-be public company both before and after the IPO.  A summary of their results follows.  In blue are venture capital-backed companies.  In red are non-venture capital-backed companies.  The top chart is the valuation of the private company based on a price to sales multiple.  This clearly shows the “theoretical” positive effects a venture capital company has (the blue line is greater than the red line).  Interestingly, and not surprisingly, the effect diminishes as time goes by.

vc effect Source: Chemmanur, Krishnan, and Yu (2016), Venture Capital Backing, Investor Attention, and Initial Public Offerings



In a recently draft publication by professors Chemmanur , Krishnan, and Yu, the authors find that the presence of venture capital firms when a company goes public may add value to the IPO.  The authors speculate that the somewhat surprising result might stem from increased investor curiosity.

In any event, the next time you evaluate the potential near-term price trend of a soon-to-be public company, you might want to consider whether venture capital firms were involved.  This could be affecting the offering price and the near term pricing trend of the soon-to-be public company.


The Merrill Corporation recently released its monthly update of mergers and acquisition (M&A) activity through the first eight months of 2016.  The report provides an interesting view of where business has been and where it might be heading.  On the whole, the overarching theme through the first eight months is one of lukewarm growth – not recessionary, but not really expansionary either.

Global M&A

Through August, global M&A activity is down about 27 percent compared to the incredibly strong 2015 activity of about $2.5 trillion.  In terms of number of deals, M&A activity is down 1,331 deals in 2016 compared to the same period of 2015.

MandA Source: Merrill Corporation

Private Equity Deals

A similar picture shows up when looking at global private equity trend over the past few years.  The total dollar value of private equity deals peaked in 2014, and stayed close to that peak in 2015.  Through the first eight months of 2016, it looks like 2016 will see a fairly healthy drop in activity.  This is true for buyout values, exit values, buyout volume, and exit volume.

Capture2 Source: Merrill Corporation

Where is Dealmaking Happening?

The picture painted by the trends in global M&A activity begs the question – where is M&A happening? Here are Merrill Corporation’s results.

Overall, just over half of total global M&A activity is in North America.  The leading sector for deals during August in North America has been Pharma, Medical, and Biotech at about $19.5 billion (31 deals), an increase of about 126 percent compared to the same month last year.  The top financial adviser in the past month was JP Morgan, capturing 25 deals worth about $44 billion, compared to 14 deals worth about $44 billion in August 2015.  Behind JP Morgan’s lead in the past month were Evercore Partners (about $23 billion), Centerview Partners (about $19 billion), Goldman Sachs (about $19 billion), and Morgan Stanley (about $18 billion).

Coming in second was non-Japan Asia at about 30 percent.  Leading the group of advisers was Kotak Investment Banking at about $12 billion, followed by JM Financial at about $10 billion, DSP Merrill Lynch at about $8 billion, Citi at about $6 billion, and EY at about $4 billion.

The geographic area with the third most deals was Europe at about 10 percent.  The industry leading the way in August was Industrials and Chemicals, with 62 deals valued at about $7 billion.  That’s an increase of 30 percent (on value) compared to the 98 deals and $5 billion in value that occurred in August 2015.  The firm leading the way behind the M&A activity was Goldman Sachs at about $7 billion, followed by Citi at approximately $4 billion, BNP Paribas around $4 billion, Morgan Stanley in the area of $4 billion, and JP Morgan at about $3 billion.

Capture3 Source: Merrill Corporation


Overall, although not recessionary, global M&A activity in 2016 is much weaker than the red-hot 2015.  In terms of where M&A activity is happening, just over half of all global M&A activity through the first eight months of 2016 occurred in North America, with just short of 4,000 deals.  In second place was non-Japan Asia at about 30 percent, followed by Europe at about 10 percent.  In all, activity is cooling off, but still moving ahead at a pace consistent with moderate economic growth.


In some respects, the American consumer is key to global economic growth.  This week we’ll get another reading on the state of retail in the U.S.  No doubt markets will respond feverishly.

The question here is related to the American consumer.  What do the 2016 Retail Sales figures for the U.S. portend for private equity-backed companies in the consumer products space?  Here’s a look at the connection between American Retail Sales and acquisitions of the aforementioned companies.

Acquisitions of Private Equity Backed Companies in the Consumer Products Space

Before going into the connection between the American consumer and acquisitions in the consumer products space, here’s a look at acquisitions of private equity backed companies in the consumer products space.

The acquisitions figures generally follow the business cycle.  The most recent measurement of 64 in 2014 is the all-time high, surpassing the previous high of 62 in 2008 (2015 figures have not been publicly released yet).  Overall, the current economic recovery has been just fine for the consumer products space, at least for consumer products companies backed by private equity companies.


Retail Sales

Shifting to the American consumer, here’s a look at the monthly Retail Sales figures as reported by the Commerce Department. The recent measurements, although not recessionary, are not pretty.  The American consumer’s spending is only rising at about 2 percent per year, around what inflation is doing. This could suggest that potential acquirers of private equity-backed consumer products companies may be less inclined to pull the trigger in the current economic environment.

YY Retail Sales Source: U.S. Commerce Department

The Connection Between Retail Sales and Acquisition of Private Equity Backed Companies in the Consumer Products Space

With American consumer growth relatively weak, could 2016 turn out to be a weak year for acquisitions of private equity backed consumer products companies?  Here’s a look at the connection between the two.  Perhaps not completely surprising, the two appear closely connected.

Interestingly, it appears that private equity is behind the curve when it comes to predicting economic conditions.  Prior to the last economic recession, acquisitions of private equity-backed consumer products companies peaked in 2007, about two years after Retail Sales started to decelerate (and eventually turn negative in 2008 and 2009).  In evaluating the connection, the weak American consumer activity probably suggests acquisitions of private equity-backed companies in the consumer products space perhaps declined to 50 in 2015 and may decline to around 40 in 2016.  Real weak given the period of the American economic expansion.

Retail Sales and Acquisitions of Private Equity Backed Consumer Products Companies


This year could turn out to be an incredibly poor year for private equity investments in the consumer products space.  The most recently available public data from the National Venture Capital Association has 64 deals in 2014.  Using some econometrics, the figure probably declined to around 50 in 2015, and may decline further in 2016 to around 40.  Although not recession-weak, for an economic expansion entering almost a decade-long in length, the 2016 figure is quite weak.


PE-Backed IPOs in 2016 Could Be the Worst in a While

September 5, 2016

If you are involved in the connection between initial public offerings (IPOs) and the private equity business, you know that 2016 has been weak, real weak. According to the private equity data provider Pitchbook, through the end of August the market has seen 42 private equity-backed IPOs. Is 42 private-equity backed IPOs weak?  Here’s a look […]

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The Changing Face of Private Equity

August 22, 2016

If there’s any sector of the global economy that’s changed since the onset of the global financial crisis in 2008, it’s the financial industry.  The industry, often blamed as part of the root cause of the global malaise, has grown and shifted attention (sometimes) quite dramatically over the past eights years. Of the many sectors […]

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Has Venture Capital in Europe Finally Arrived?

July 26, 2016

Part One of a Two Part Series It’s been almost six years now since Arif Naqvi’s Abraaj Group provided £4 million to fund the first Master’s program in private equity in the world. It was a bold endeavor. In September 2010, when the MSc Finance & Private Equity program was launched at the London School […]

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It’s Certainly Not Even Across the Financial Industry, but Financial Employment is Coming Back

July 12, 2016

Friday’s employment report out of the Bureau of Labor Statistics (BLS) showed a white-hot American labor market.  June’s employment growth jumped +287K, a gigantic jump from the +38K of the prior month. In looking at financial industry employment, the picture is certainly strengthening as well.  During June, financial industry employment gained 16,000; for the year […]

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Anyone Notice the Change in Venture Capital on Banks’ Balance Sheets?

June 27, 2016

The venture capital industry is connected with many edges of the global economy. One area that’s experienced a shift in venture capital’s importance is banking. Question: Would you guess that revenue from venture capital investments is growing or declining in relevance on banks’ balance sheets?  Here’s the look. Savings Institutions Savings institutions are entities that simply […]

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Which President Was the Best for Venture Capital?

June 14, 2016

It’s presidential election season.  What better time than now to ask which president since 1985 has seen the strongest venture capital performance during his administration? (Note: the choice of 1985 is based purely on availability of reliable data.  If further historical were readily available, it would have been included in this article.) Within this period are […]

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Can You Guess the Top 10 Venture Investors and Accelerators?

May 30, 2016

If there’s anything the venture capital and private equity world is for sure, it’s that at the sectors are competitive, uber competitive. Can you guess which entities come out as the most active?  Here’s a look. Accelerators First, a look at the top accelerators.  The first graph is a look at the top 10 accelerators since […]

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