Contact: Brenon Daly
After a prolonged period of restructuring and refocusing their own businesses, tech bellwethers are once again in the market for startups. Many of the industry’s biggest names are putting their record levels of cash and record-priced equity to work as they return to paying significant valuations for largely unproven companies. This year’s return of the recently rejuvenated ‘usual suspects’ of tech M&A comes after a few years when the big names were somewhat overshadowed by unconventional buyers rolling the dice on technology vendors.
For instance, the list for 451 Research’s M&A KnowledgeBase of who has printed significant acquisitions of VC-backed companies this year includes Cisco, CA Technologies and Hewlett Packard Enterprise. In 2017, there aren’t buyers like General Motors, as there was in 2016, or Delivery Hero, as there was in 2015. To generalize broadly, we might suggest that the driver in the startup M&A market has swung from fear to greed. What we mean by that is several of the 2015-16 big VC exits appear to be motivated by fear, specifically – as kids these days say – fear of missing out. The threat of being disrupted by technology appears to have driven earlier transactions such as Unilever’s $1bn purchase of Dollar Shave Club last July and old-line Ritchie Bros. Auctioneers’ $759m pickup of online platform provider IronPlanet last August.
This year’s resurgence of the well-known tech giants, which have both the means and the need to acquire faster-growing startups, has helped boost the number of significant VC exits in 2017 to almost as many transactions as the same period of the two previous years combined. According to the M&A KnowledgeBase, buyers so far this year have announced six deals valued at more than $500m. (That total includes transactions for which 451 Research has a proprietary estimate of the unannounced terms.) For comparison, the same period in 2016 and 2015 produced a total of just seven VC exits valued at more than a half-billion dollars.
Probably no group is happier to see renewed demand from these tried-and-true acquirers of startups than the main supplier of startups, Silicon Valley. VCs overwhelmingly rely on sales of their portfolio companies to generate returns and, thus, keep their firms in business. The acceleration in the pace of big deals for startups is helping to offset a rather lackluster IPO market, which offers the other exit for their portfolio companies. Not that many startups are taking that exit, as we detailed in our special report on the fertile, but barren, tech IPO landscape.
