PITCHBOOK - Acquisitions of VC-backed companies may have hit a decade low in Q1, but the number of conversations between potential buyers and sellers is far from that nadir. "There is a lot of window shopping," said Sheila Patel, general partner at VC B Capital Group. Dealmakers and investors agree that by the end of this year or early next year, M&A activity will increase significantly. The timing comes down to simple math. The runways of many early and mid-stage startups are expected to expire in the next six to nine months. "If companies can't raise money, where are they going to go?" said Navin Chaddha, a managing director at Mayfield. "I see a lot of consolidation."
Larger startups are looking to buy smaller companies with complementary products. These acquisitions aim to create a bigger platform and grow revenue by cross-selling to each other's customer bases. Combining these companies could create a business large enough to be an IPO candidate.
Public companies more recently have a lower acquisition appetite than before because their valuations are down significantly. Strategics will only buy a startup that offers a product they absolutely "must have," and it should be straightforward to integrate the target into the parent business.
A recent survey of CEOs from The Conference Board found executives expect the economy to deteriorate further by the end of the year. Such sentiment may be a reason to wait for valuations to drop even lower.
While a sale to a private equity firm is seldom a great financial outcome for VCs, dealmakers expect a surge in these transactions in the next 12 months. There will eventually be a deluge of VC-backed companies for sale, which means private equity investors can afford to be picky.
by Marina Temkin
See full article at Pitchbook
Mark Brooks: Match Group's cost of capital is higher now, so IMHO they will rest on their laurels and make the most of what they have until the trajectory of the market looks more clear. Other buyers will be bargain hunting, but mindful of the poor outlook for IPO'ing a consolidated dating group. VC money is a little dry. Angels rule. If you're in the market for funding, let me know, and I'd be happy to share a comprehensive list of investors that we've built over the years, and just updated current thru April. FYI, Courtland Brooks works with startups through $500m+ revenue dating companies.
