Corporate VC Backing Influences Private M&A Step-Ups

In the wake of the 2008–2009 financial crisis, there has been a decided uptick in corporate venture activity; as traditional venture investors aim to convince LPs to recommit to their funds, they've shifted to later-stage investing, in the hopes of shortening the time to exit. That's created a window of opportunity for strategic investors, who can tap into more innovative projects now at earlier stages. ( See "Corporate Venture Takes Center Stage," START-UP , May 2009 Also see "Corporate Venture Takes Center Stage " - Scrip, 1 May, 2009. and "In the Midst Of A Shakeout, Biotech VCs Must Embrace New Partners, New Math," START-UP , September 2010 Also see "In the Midst Of A Shakeout, Biotech VCs Must Embrace New Partners, New Math" - Scrip, 1 September, 2010..) Bringing in new corporate venture investors at the B or even C round has likely allowed for more up rounds than would have been possible with traditional venture's retrenchment. But there are other advantages as well. In the past, some traditional venture capital firms may have shied away from co-investing with corporate entities. Conventional wisdom suggested that the involvement of such groups might preclude a syndicate's ability to structure an aggressive bidding war for a portfolio company, resulting in a lower overall return. But an analysis by START-UP shows such logic to be outdated. Far from capping an exit, new data show that including one or more corporate venture investors in a syndicate actually translates into a higher median step-up valuation.

Using Elsevier's Strategic Transactions, START-UP identified 92 private biopharma acquisitions completed since 2006. Device, diagnostics, and services companies were excluded....