3 ms·

> M&A is effectively dead right now Curious if there is a reason why M&A is slow; any reading?

by CharlieDigital 2y ago

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.
        alephnerd 2y ago
        Ah ok! Crossed wires!
  - alephnerd 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

> 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.
      - alephnerd 2y ago
        Ah ok! Crossed wires!
- alephnerd 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