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Exit options have been limited for startups in recent months. Through the end of the third quarter of 2023, we saw a lull in M&A activity across the board, including the tech sector. As we kick off the December sprint to the end of the year, however, we are seeing a strong pick-up in the action. CB Insights published their Tech M&A Q3 Report, looking at global M&A activity. The report indicates that deal volume reached the lowest level we have seen since early in the pandemic, with just 1,765 tech M&A deals in Q3. This was a 6% Quarter over Quarter (QoQ) decrease. That said, aggregate valuation increased by 10% QoQ to $1.1T, which they say reflects a rebound in the number of large M&A deals.

This marks six out of the past seven quarters where CB Insights has reported deal volume decreases. This is characterized by strategic acquirers continuing to hold back, with deals by strategic investors dropping 35% since late 2021. This is significant because they account for over 90% of deals. However, they are optimistic about the data showing that Q3 saw 38% more acquisitions at the $100M+ level by strategic acquirers than Q2.

While the rise in large deals by strategic investors is good news, they do point out that it will likely be several more quarters before strategic M&A really makes a comeback, and that comeback will be a major factor in an M&A resurgence.

Below are more highlights from the report.

Valuation Step-Ups Fall: Although there was an increase to 1.5x in Q2, we saw institutionally backed M&A targets have lower valuation step-ups in Q3, dropping below 1x for the quarter.

Europe Leads Tech M&A Volume: Europe surpassed the U.S. in terms of deal volume with $100MM+ deals rising 80% QoQ. The region saw an increase to 33 large deals vs. 18 in Q2.

Absence of Big Tech: Big Tech had no M&A activity in Q3. Antitrust concerns could be playing a role here as there is quite a bit of pending litigation involving the “big tech” giants, as well as some uncertainty on the future of regulation in this area. This is likely impacting decisions on acquisitions.

Billion-Dollar Deals on the Rise: Deals valued at $1B+ rose from 14 in Q1 to 21 in Q3. These mega deals are up 50% from the low in Q1 of this year.

While this is not the total M&A rebound everyone is watching for, some encouraging signs exist, such as the rebound in median valuation for targets. After previous declines, it is back up to $41M for Q3. This, coupled with the increase in mega deals and the uptick in strategic investors’ involvement in large deals, is the kind of news we are watching for. As we see more of these indications, we will likely see overall M&A activity rise as well. We will be watching closely in 2024.

Author Louis Lehot

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