Venture Prepares for Structured Acquisitions

With Big Pharma content to sit on the sidelines and wait as biotech company valuations continue their fall, the M&A activity that does take place is likely to place a premium on hedging risk. And, say venture investors, that means structured acquisitions of biotech firms are likely to increase as pharmaceutical acquirers gain more leverage over cash-strapped firms in deal negotiations. (See "Reacting to the Crisis: Biotech Venture Capital’s Plan B," this issue Also see "Reacting to the Crisis: Biotech Venture Capital's Plan B" - Scrip, 1 December, 2008..) If true, VCs eager to cash out of portfolio companies will get saddled with more risk and face difficulties in disbursing funds to limited partners buffeted by the ongoing financial crisis.

According to data from FDC-Windhover’s Strategic Transactions, the expected uptick in earn-outs will be a sharp turnaround from the trend...