18 ms·

Important distinction: this is for a growth fund ("mature companies" in the article). Growth funds are typically fund dedicated to either later stage financings

• CharlieDigital 2y ago
  > M&A is effectively dead right now Curious if there is a reason why M&A is slow; any reading?
  • bpodgursky 2y ago
    Anti-trust
    • bbor 2y ago
      Brings a tear to the eye… there are good things in the world! Nature is healing!
    • jordanb 2y ago
      Higher interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE.
      • JumpCrisscross 2y ago
        > interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE Reasonable hypothesis, but not quite. LBOs' share of American buyouts has been falling monotonically since at least 2015 [1]. Buyouts have increasingly been smaller add-on acquisitions, with tech dominating activity. [1] https://thesource.lseg.com/TheSource/getfile/download/bf99ca9a-a80a-4215-8538-44d8539e8ccf https://thesource.lseg.com/TheSource/getfile/download/bf99ca...
        • hadlock 2y ago
          From my M&A colleagues, they're saying it is largely interest rates.
  • jppope 2y ago
    Anti-trust, yes. But also VCs funding a bunch of weak companies early stage for the last several years
    • JumpCrisscross 2y ago
      > Anti-trust, yes The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust. The other reason isn't so much weakness as much as pandemic-era valuation madness. Reasonably priced, a lot of start-ups would sell for less than their last valuation. That would seriously cut into the founders' pay-outs, which are usually based on common stock.
      • twoodfin 2y ago
        Tabular, for example, seemed to do OK finding a non-strategic buyer.
        • alephnerd 2y ago
          Databricks' acqusition of Tabular was absolutely strategic. Both Databricks and Snowflake are in the process of integrating Iceberg capabilities into their own lakehouses, because the industry is consolidating towards Iceberg, especially after Clickhouse and Dremio integrated Iceberg support in 2022. This is why Snowflake preemptively announced the Polaris Catalog right before the acqusition by Databricks was announced. Databricks, Snowflake, Dremio, and Clickhouse are all competing for the same piece of the pie, and much like Cybersecurity in the late 2010s to early 2020s, there is a drive to "everything" platforms, and RFPs can absolutely get sank due to lack of capabilties in comparison to a vendor.
          • twoodfin 2y ago
            Right, my point is there are a few more strategic buyers outside the trillionaires club.
            • 2y ago
  • candiddevmike 2y ago
    I'm not sure if it's really anti-trust. I think companies are being stingy with M&A because most companies are no longer worth the acquisition cost. They're looking for more "strategic" buys as money isn't cheap anymore. You're still seeing M&A, it's just occurring with more complimentary companies that actually add value (or hires) to their existing portfolios.
    • stackskipton 2y ago
      Yea, my company has done a few acquisitions. Ones from 4 year ago were head scratchers, what do they add? Last one has been clear value add.
  • deleted 2y ago
    [deleted]
  • schmidtleonard 2y ago
    Interest rates.
  • mschuster91 2y ago
    Biggest one IMHO is interest rates. The days of virtually-free credit lines are gone for the near to mid future - at least until the situations in Israel/Palestine and Ukraine/Russia are sorted out, but even then, China may want to take over Taiwan leading to the next global crisis. Another reason is the AI craze. Everyone and their dog is focusing on being a/the dominant power in that area, so interest in "old tech" is waning. And the last/smallest factor is that many of those individuals who exited in the last few years are hesitant where to put their money, and there is not much space for multi-billion dollar established companies to make acquisitions when they're all forced to let people go as a result of the post-/mid covid hiring spree and anti-trust authorities worldwide being very critical of more agglomerations at the moment - some because of strategic reasons (Europe in particular isn't looking too friendly to more of their companies being bought out by foreigners), some because they do not want to risk even more companies growing too-big-to-fail.
    • snarf21 2y ago
      You are exactly right, money isn't (essentially) free right now. There are better returns elsewhere.
  • JamesBarney 2y ago
    A combination of interest rates and cap tables being all messed up from 2021. If you have a company that raised a 100m of preferred at a 500m valuation, are you going to take an offer for 150m? Most founders are just going to keep grinding hope things get better.
  • ajsharp 2y ago
    Will echo what many have said here already, but with a slight twist: 1. Anti-trust activity takes a HUGE portion of the liquidity that does M&A out of the market. That has a dynamic effect -- other players who are not under direct anti-trust scrutiny think twice about their potential M&A activity. This, in theory, should reduce M&A prices (reduction in supply supply), but this is probably largely offset by point 2. 2. Inflated valuations from 2021 era. Lots of companies raised ridiculous late stage rounds around this period. Then interest rates rose. Now your company that raised on 100x ARR is worth a lot less than it was. But the company still has to grow into and beat it's last valuation. Combined with the M&A dynamics, it's much harder to justify a post-money above what your last raise was if that raise was a post-covid valuation, unless the business is just truly on ripping (e.g. Wiz).
  • hodgesrm 2y ago
    It's not anti-trust in the case of smaller acquisition targets. There are also fewer strategic acquirers in some if not all markets. For example, if you built a good product 10 years ago on top of an open source project, there were a number of companies looking to grow by acquisition, such as RedHat, VMware, Rackspace, and Salesforce. Of those only Salesforce is still a factor. Edit: clarity
• cellis 2y ago
  Right, better to give the money back and preserve IRR/ reputation than try to simply earn carry.
  • JumpCrisscross 2y ago
    > preserve IRR/ reputation than try to simply earn carry Management fees. Carry is performance based.
  • patrickhogan1 2y ago
    They aren’t giving it back they are converting it into a new fund for early stage companies. The article is click bate.
    • ajsharp 2y ago
      Oh i missed that part -- that makes way more sense.
  • noleary 2y ago
    FWIW, the IRR clock doesn't start until they call capital from the LPs.
    • JumpCrisscross 2y ago
      > the IRR clock doesn't start until they call capital from the LPs Capital calls must be honoured on short notice. That means committed capital must be kept low-risk and liquid. That has an opportunity cost. While you are correct in conventional IRR, particularly that touted by funds, only starting the clock when capital is called, LPs measure their own IRRs that consider the opportunity cost of committed uncalled capital.
      • noleary 2y ago
        Yeah, that's a good point :) Do you have any inside info on how some of these big LPs are modeling opportunity cost against their growth equity commitments? My understanding gleaned from friends has been that they're generally just cutting exposure to growth-stage software and planning to park the capital in pretty vanilla/liquid public equities and fixed income anyway. Seems like no one really wants to be interested in increasing their exposure to PE or growth equity anymore.
• londons_explore 2y ago
  > late stage companies have valuations that are too high to IPO without taking a big valuation haircut. AKA, we've made a loss, but don't want to admit it yet. If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value. If you over declare, you pay more tax. (you'd pay perhaps 1% of the asset value every year, and that would replace income tax, capital gains tax, etc) If you under declare, someone else will come take your asset off you for whatever value you said. Suddenly this whole idea of "unrealised gains/losses" goes away, as does fake valuations for tax avoidance.
  • ttymck 2y ago
    "allow anyone else to buy any of those assets for the declared value" How would this work?
    • whatshisface 2y ago
      If you show up at the tax assessor's office with a check for more than the self-reported value of my home, realistically plus the premium the government pays in eminent domain cases, you get the title. That idea is pretty much "eminent domain for all."
      • BobaFloutist 2y ago
        That seems really annoying to deal with. It's possible it would lead to a better society eventually, but in the short term I'd rather speculators not buy my shitbox car out from under me because they spotted the chip shortage before I did.
        • whatshisface 2y ago
          It might not be so bad if you were allowed to accept an increase in your tax assessment rather than selling at the new price.
• SoftTalker 2y ago
  > many late stage companies have valuations that are too high to IPO without taking a big valuation haircut. Isn't the market what determines the value of a company? If they can't get the IPO price they want, then they aren't worth what they think they are.
  • AYBABTME 2y ago
    If they have enough cash/free cash flow, they don't have to take money at a lower valuation.
    • JumpCrisscross 2y ago
      > If they have enough cash/free cash flow, they don't have to take money at a lower valuation Sort of? You're describing either a healthy business, at which point their market value shouldn't be an issue, or management holding the business hostage because they prefer their salary to shareholders having a return.
      • gtCameron 2y ago
        There isn't a return for shareholders if the valuations are lower. The problem is not management holding the business hostage today, the problem was investing at unsustainable multiples a few years ago. Now the only options are to either cash out at a lower valuation and not make any money, or wait and hope the business grows to the point where you can get a higher total valuation despite the lower multiple and see a return on your capital.
      • candiddevmike 2y ago
        > management holding the business hostage because they prefer their salary to shareholders having a return. But Ive been fed that the principal agent solution of equity and executive privilege prevents this! Next you'll tell me capitalism doesn't allocate resources efficiently.
        • JumpCrisscross 2y ago
• miki123211 2y ago
  There's also the fact that antitrust regulators seem hell-bend on killing the M&A market entirely. Historically, there were two main paths for startups, IPO and being acquired by a larger competitor. The latter path is now a lot more difficult, due to the DoJ, the EU and whatever the UK's thing was called suing everybody who tries to do an acquisition. In the long run, this means fewer startups will get acquired, fewer startups will have an opportunity to exit, the potential upside for VC firms is going to diminish drastically, fewer companies will get funded, which will ultimately lead to the incumbents having all the power and startups having none. This is a very bad thing.
  • woooooo 2y ago
    Any links handy to justify that claim? My impression from headlines was that some massive enterprise M&A was blocked recently but not so much "startup exits". Maybe I missed it though!
  • dartos 2y ago
    Sounds like a slippery slope fallacy. What’s to say startups don’t start being creative or truly innovative and focus on making and selling products while making a profit? I’m sure another viable exit strategy will be discovered
  • _DeadFred_ 2y ago
    Man the 'it's really bad government is enforcing antitrust laws' crowd sure is pushing this hard on HN this week. You understand all of the original thought on capitalism explained how it was essential the government keep this type of control on markets in order for capitalism to work, right? If your only business model is to get bought out by a larger company capitalism SHOULD world to reduce the number of startups. Also, the incumbents just buying everyone up also = incumbents having all the power, and is also a very bad thing. Hence the creation of antitrust laws, and the concept of it being baked into foundational capitalist thought.
  • Vegenoid 2y ago
    I don’t know very much about business - but having the goal of most new companies being to be bought by a larger company doesn’t really sound healthy to me.
• financetechbro 2y ago
  M&A is not dead. Not at 20/21 levels, but certainly not dead. Some sectors in tech are much stronger than others, now if you’re a company that is burning cash and doesn’t have an appealing growth profile then yeah you won’t get a deal done (source: me). IPOs are basically dead atm