Friday, March 29, 2024 | Ramadan 18, 1445 H
clear sky
weather
OMAN
25°C / 25°C
EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

M&A could rebound as startups cave to lower prices

minus
plus

The M&A market for venture-backed startups is expected to see a rebound in dealmaking this year as entrepreneurs and their investors resign themselves to accepting lower prices for their companies. Startups flush with capital from the recent bull market in venture funding have been holding out for better prices for months, despite calls for discounts from prospective buyers anticipating a souring economy.


Many startups, however, may soon give in, if they continue struggling to raise capital and face lower private market valuations. Cashing out at a price below their expectations represents a sort of “soft landing”, said Melissa Incera, a research analyst at S&P Global Market Intelligence. As a result, discounts should drive dealmaking after a slowdown in 2022.


The number of M&A deals worldwide involving venture-backed startups fell for the fourth straight quarter in the October-December period to an estimated 2,062 deals, according to market research firm CB Insights. Additionally, S&P estimates that total spending on global tech acquisitions – both public and private – fell from 2021 by 25.7 per cent to $584 billion in 2022.


Acquirers reported roughly half as many deals valued at more than $1bn last year compared with 2021, likely reflecting a “renewed sensitivity to risk and uncertainty at the top end of the market”, S&P said in a recent research note.


Meanwhile, with unfavourable conditions for public market debuts likely to persists this year, mature and well-capitalised startups are on the hunt for acquisitions to fill gaps in products and services – and add value – in anticipation of IPOs that may come, fuelling tech market consolidation.


Head of M&A at investment bank Union Square Advisors, Wayne Kawarabayashi said: “While it isn’t the case across all potential sellers, some sellers will be willing to accept a lower price if current market valuations remain depressed and they have a need to sell.”


A senior fintech analyst at CB Insights, Elif Yayla, said the next few quarters will shed more light on where the M&A market stands. However, she expects more activity as “acquirers get great deals on their targets.” Lightspeed Venture Partners partner Arif Janmohamed said that “it would surprise us to see the larger tech companies, who have historically used inorganic growth to expand their platforms, get more aggressive this year and pursue some of the more innovative startups.” But many of the most valuable startups may chose to continue to grow “rather than selling at a depressed valuation”, he added. While last year’s M&A slowdown may reflect a reluctance among startups to sell, it came amid increased buyside due diligence on valuations and business-model profitability, Yayla said. As buyers dig deeper, some are finding inflated values and overpriced equity – prompting them to offer lower bids.


Buyers are also seeing financing costs rise, analysts said, driving down interest in megadeals such as Adobe’s planned $20 billion acquisition of collaboration software startup Figma, announced in September. Still, a cluster of recently announced deals may be a sign activity will pick up.


Among them is DataStax, a Santa Clara, California-based database management company. Last month, it said it agreed to acquire Seattle, Washington-based Kaskada, a machine-learning startup. Terms weren’t disclosed.


DataStax last year raised $115 million in a funding round led by Goldman Sachs AM at a $1.6 billion valuation.


DataStax’s CEO, Chet Kapoor, said the acquisition wasn’t the result of a discount or the frozen IPO market. Rather, it was about Kaskada’s capabilities fit into DataStax’s growth strategy, he said. He added: “This is just one acquisition, but we will continue to do this in the year ahead.” (The writer is our foreign correspondent based in the UK)


andyjalil@aol.com


SHARE ARTICLE
arrow up
home icon