October 3, 2022

Will Unicorns Move from IPOs to M&A?

This recent Pitchbook article makes the case that Adobe’s planned $20 billion acquisition of Figma may be a bellwether transaction for hot tech startups.  The article suggests that the IPO slump may prompt more of these unicorns to pursue M&A transactions as an exit:

For now, 2021 valuations are still fresh in people’s minds. But the economy will suffer as a result of tight monetary policy, leading to a slowdown in growth rates. Under those circumstances, startups will be hard-pressed to hang on to last year’s valuations.

Bankers and venture capitalists are predicting that significant M&A deals will start taking place next year, but how many sizable transactions materialize depends largely on the state of the public markets. The longer the IPO window stays closed, the more likely it is that large startups would be open to being bought.

While it may take years to evaluate whether Adobe overpaid for Figma, other corporations may soon have a chance to pick up their favorite startups at more reasonable price tags. For their part, startups would do well to accept the market reality that 2021’s prices are not coming back anytime soon and consider striking a deal before the full impact of fiscal tightening becomes evident.

Of course, it’s all fun & games in tech-deal land until the antitrust cops show up.  I’m sure other hot tech properties and potential buyers will keep an eye on how this deal – which involves direct competitors and raises antitrust issues that are more traditional than “hipster” – fares under their scrutiny.

John Jenkins