The market for VC-backed IPOs may be weak, but Ed Cahill, managing partner of HLM Venture Partners, says the current environment for M&A activity is like a day at the beach.

• Animas Corp. was bought by Johnson & Johnson for $518 million. The firm expects to realize a return of 3.2X its investment.
• CorSolutions Inc. is being acquired by Matria Helathcare for $445 million and HLM expects a 4.5X return.
• And American WholeHealth Inc. was acquired by AXIA Health Management, which should give HLM a 2.2X return.

Cahill notes that HLM had three portfolio companies go public in 2004, but none last year.

"It was tough to go public in 2005," Cahill says. "But the good news for the venture world is that you can make money in the current environment because there is a lot of interest from corporations looking to grow through acquisition, especially in the health care sector."

Indeed, IPOs did tail off in 2005. For the year, 56 VC-backed companies launched an IPO, raising $4.5 billion, compared to 93 venture-funded IPOs, raising more than $11 billion, in 2004, according to data compiled by Thomson Financial (publisher of PE Week) and the National Venture Capital Association.

However, venture-backed M&A activity remained strong in 2005 for the second consecutive year, according to the venture-backed exit report. The number of M&A transactions for the year held steady at 330, compared to 339 in 2004. But the average disclosed deal value rose in 2005 to $91.5 million from $83.4 million in 2004.

Kate Mitchell, managing director of BA Venture Partners, says that her firm realized four liquidity events last year - three acquisitions and one IPO.

"The cycles come and go as the IPO window opens and closes," Mitchell says. "Right now, though, we're happy with the returns we're getting from our M&A exits and we're seeing more M&A exit opportunities in 2006."