Venture-Backed Biotech Generates Quicker Exits but Lower Multiples than Medical Device
Company News | May 19, 2011
SANTA CLARA, Calif. – May 19, 2011 – Silicon Valley Bank (SVB), financial partner to innovative technology and life science companies worldwide, released a study today that examines the merger and acquisition behavior of private, venture capital-backed biotech and medical device companies.
Based on an analysis of private merger or acquisition transactions of US venture-capital backed companies (60 biotech and 58 medical device) since 2005, SVB found several conclusions about investments in life science companies that counter conventional wisdom. SVB's study included private life science M&A activity in excess of $50 million for device companies and $100 million for biotech companies.
"We feel like we are myth busters," said Jonathan Norris, Managing Director with SVB Capital's Venture Capital Relationship Management team. "Our research shows that many of the basic assumptions upon which life science investors base their decisions do not hold true in the current market. We wanted to look at the big deals – the winners – and learn from their common characteristics. We were definitely surprised by the results and think this report will have an impact on some firms' life science investment philosophies."
Having reviewed M&A exits over a six year period, SVB's report shows biotech companies overall have quicker exits and lower multiples versus medical device companies, which tend to have longer exits and higher multiples. The research also revealed that biotech companies that received Series A venture capital investments at the pre-clinical stage made up the majority of the biotech exits over the past six years. Additionally, the study shows a shift among biotech exits to predominantly structured deals that pay a portion up front with the remaining payment coming when the company achieves its future milestones. This is contrary to the previously established trend of paying the entire transaction amount up front, which was how nearly 80 percent of significant life science M&A transactions were handled just three years ago. The report also shows a rise in M&A activity and the dollar amount of exits among medical device companies, as well as a trend toward later stage exits.
SVB works with more than 50 percent of life science-focused VC firms and life science companies nationwide, specializing in companies in biotech and medical device fields. SVB's biotech clients research and develop therapeutics and diagnostics for the medical, pharmaceutical and healthcare industries. The company's medical device clients design and distribute medical equipment and surgical instruments.
Additional data on life science companies is available from SVB:
• Register for SVB's Online Seminar: The Health of Biopharma - Trends in Investments and Exits to be held on June 16, 2011
• SVB's 2011 Startup Outlook survey: as reported by life science startups in 2011
• SVB Analytics' new Benchmarking Service: private life science companies can now benchmark their financial performance against their peers for the first time
• SVB Analytics Quarterly Trends: details the sales growth, profitability and cash flow of Silicon Valley Bank's life science clients
About SVB Financial Group For nearly 30 years, SVB Financial Group and its subsidiaries, including Silicon Valley Bank, have been dedicated to helping entrepreneurs succeed. SVB Financial Group is a financial holding company that serves companies in the technology, life science, venture capital/private equity and premium wine industries. Offering diversified financial services through Silicon Valley Bank, SVB Analytics, SVB Capital, and SVB Private Bank, SVB Financial Group provides clients with commercial, investment, international and private banking services. SVB also offers funds management, broker-dealer services and asset management, as well as the added value of its knowledge and networks worldwide. Headquartered in Santa Clara, California, SVB Financial Group operates through 26 offices in the U.S. as well as through international offices in China, India, Israel and the United Kingdom. More information can be found at www.svb.com.
Banking services are provided by Silicon Valley Bank, the California bank subsidiary and commercial banking operation of SVB Financial Group, and a member of the FDIC and the Federal Reserve. SVB Financial Group is also a member of the Federal Reserve.
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