IPO market sags as M & A hits 5-year high.

Maybe there's really something to the notion that Sarbanes-Oxley compliance fears have dissuaded private companies from pursuing a public offering and electing either to stay private or sell out to another company.

Only 10 venture-backed companies came to market in the year's first quarter, raising $540.8 million through initial public offerings (IPOs), according to Thomson Venture Economics and the National Venture Capital Association. While the first quarter is typically the lowest of the year for IPOs, offer amounts were also down considerably from last year. The first quarter's average offer amount of $54.1 million was the lowest since the third quarter of 2002, when the average offer was $30.0 million.

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Conversely, the venture-backed M & A market continued to surge, with 95 companies being acquired with a disclosed value of $4.8 billion, the highest total disclosed value in five years.

Mark Heesen, president of the National Venture Capital Association, expressed unease about the poor IPO activity: "We are becoming increasingly concerned about the economic implications of the lackluster IPO market for venture-backed companies," he said. "Although we are bolstered by the continued strength of the acquisitions market, we can not rely on it as the only avenue to produce above-average returns for the venture industry. Our economy depends on a strong U.S. capital markets system to create jobs and revenues here."

Heesen added: "This situation needs to show signs of improvement before year-end, or we will begin to feel the effects on a much broader scale."

The hottest venture-backed IPO sector in the first quarter: life sciences, which accounted for seven of the 10 offerings and raised $309.8 million in total. In the technology sector, three companies raised a total of $231.1 million.

In contrast to the IPO market, M & A activity remained especially vibrant, building strongly on momentum from the previous two years. The first-quarter M & A total disclosed value represents a 46.8 percent jump over the fourth quarter of 2005, and a 10.4 percent boost over last year's strong first quarter. This quarter has been the most robust since the first quarter of 2001.

The average disclosed deal size came in at $112 million, a significant improvement over the previous quarter and the first quarter of 2005, which posted averages of $69.7 million and $93.6 million, respectively. The improvement is even more starkly illustrated in the median figures for the quarter, a disclosed value of $60 million. Last quarter, that figure was only $31 million, and in the first quarter of 2005, it was $33.6 million.