Many in the enterprise capital and M&A worlds predicted that after a slow 2023, this yr would see a return to more aggressive dealmaking.
Some of them have a good reason this optimism — as valuations of venture-backed startups slowly decline, the IPO market has reopened somewhat, with strategic buyers and private equity investors strapped for money.
However, in the first quarter there was only a slight increase – 413 transactions were finalized by March, They show Crunchbase data. This represents a 20% increase in comparison with the fourth quarter of 2023, when only 344 deals were accomplished, but this quarter was also the slowest in years for buying VC-backed corporations.
In fact, Q1 deal totals are still one notch below Q3 2023’s 421 deals, which were the slowest in years leading as much as Q4.
There were also no transactions value greater than $1.8 billion during the quarter, and the most vital transactions included:
In the fourth quarter of last yr, there have been three transactions value at least $2 billion involving VC-backed corporations, including: Roche by agreeing to buy the manufacturer of the anti-obesity drug Carmot therapy for $2.7 billion.
The market stays weak
Despite the optimism on the a part of dealmakers, it was probably unwise to expect VC-backed deals to make huge strides in the first quarter.
Most enterprise investors will tell anyone that while valuations have fallen, valuations for high-quality corporations – those who other corporations actually need to buy – remain high, even if they have peaked.
Many buyers probably consider that the market has not yet bottomed out and are waiting on the sidelines to see if prices fall further.
Regulatory complications
Concerns also persist about the antitrust regulatory process. Deals are taking much longer than in previous cycles, if they are approved at all, bankers and industry lawyers say. Deal delays cost corporations money by increasing deal value and dissuading suitors from pursuing deals.
Most famously, regulatory issues rejected a proposed $20 billion takeover With Figma By Adobe end of last yr.
Just this week Altruist founder Jason Tip he said M&A exit for his wealth management startup, which just raised $169 million in a Series E round led by Iconiq development which values the company at greater than $1.5 billion – was not considered because few buyers could afford the company and those that would likely face antitrust scrutiny.
Looking to the future
However, not all the news is bad for the M&A market.
Just last month Microsoftsupported data security company Heading has joined the ranks of startups testing the IPO waters, and many insiders are doing so “cautiously optimistic” as the yr progresses, the market for latest public corporations will rejuvenate.
An lively IPO market also helps in M&A transactions because it helps determine the market price and gives corporations selections as most will pursue a two-pronged process – involving each an IPO and a sale – with the aim of providing liquidity to investors.
Cash buyer
There is also a strategic aspect to the mergers and acquisitions market.
Nvidia made headlines last month when it bought two young artificial intelligence startups. The chip giant announced that it had bought Run: Please For reported 700 million dollars. It was also reported that it bought So there you have it. Both startups help corporations develop cheaper artificial intelligence models.
Many in the M&A ecosystem consider the strategies will use some of the dry powder they have on their balance sheets to broker deals for VC-backed startups, particularly those in the AI or adjoining spaces.
Over the last 4 quarters, for example, Nvidia has seen its money and short-term investments double to $26 billion. Companies like Cisco AND Apple also saw an increase in money and short-term investments during this time – although Apple last struggles AND share buyback plan it might probably get in the way of any big deals.
While Microsoft’s money and short-term investments on its balance sheet declined last yr amid buybacks and deal closings, the cloud giant, which has made no secret of its artificial intelligence desires, still has $80 billion left. Look for the giant GoogleMeanwhile, it has $108 billion.
Private equity also has a significant amount of dry powder, as evidenced by this Tomasz Bravoa few weeks ago, it entered into an agreement to buy a cybersecurity company Dark trace for a cool $5.32 billion in money.
Of course, things may still go fallacious in the M&A market. Inflation has risen again, earning money – including that on balance sheets – more precious, and some technology stocks have had a rough few weeks. If this happens, any equity M&A deal could possibly be difficult. The company is not going to need to use what it considers discounted shares in the transaction.
Nevertheless, many startup investors are looking for liquidity after a slow few years, and each strategic and private equity investments appear able to be added to their portfolios, so perhaps the surge in dealmaking in the first quarter is just the starting.