What do the ‘latent take-unders’ on Wall Street mean for startups?

by Brenon Daly

Either the acquirers of big tech companies on US exchanges are getting steals right now or Wall Street got duped last year. We say that because a majority of the public companies that have been acquired so far this year have signed off on deals – including takeover premiums – that value them at lower prices than they achieved on their own in 2015.

To put some numbers on the trend of latent ‘take-unders,’ we looked at the 13 tech vendors in 2016 that got erased from the NYSE or Nasdaq in deals valued at $500m or more, according to 451 Research’s M&A KnowledgeBase. In eight of the 13 transactions, companies sold for prices below their 52-week highs, with just five coming in above those levels. (We would note that while US equity indexes have whipped around a bit, they are basically flat over the past year.) Among the vendors that have tacitly agreed they are worth less now are TiVo, Polycom, Lexmark and Cvent.

Because of liquidity, public market valuations adjust far more quickly and visibly than private market valuations. We tend not to hear much about the ‘down-round’ sale of a startup. And yet, those discounted deals are coming, according to the recent M&A Leaders’ Survey from 451 Research and Morrison & Foerster. A record two-thirds of the dealmakers (64%) we surveyed said private companies were likely to get sold for less during the remaining months of 2016 than they would have in the same period last year.

Startup valuation outlook