In the early season of the COVID-19 pandemic, uncertainty drove M&A activity across the globe to its lowest point in a decade. However, after a sluggish Q2 2020, M&A surged. Financier Worldwide reported that in September 2020, deal value had increased roughly 75 percent year-over-year, and a report by Refinitiv attributes 17 percent of global M&A to tech’s $337 billion worth of deals. That’s a 20-year high and a 25 percent increase from 2019’s totals.
Then, there are SPACs, which have become the largest-ever tech M&A market disruptor. According to reports by 451 Research, in the first three months of 2021 alone, SPACs drove the total value of tech M&A spending far beyond its highest yearly levels in a decade, as spending reached its highest quarterly level of all-time.
The record-breaking stats go on and on. In such an exciting time for M&A, I tapped five industry experts to share their take on the market, shed light on what’s top-of-mind for corporate development (corp dev) teams today, and give advice for founders navigating this climate:
- Brett Simon, Senior Director of Corporate Development at Coupa Software.
- Alon Bonder, Strategy and Corporate Development at Google.
- Dan Brown, Corporate Development at Okta.
- Dino Boukouris, Founding & Managing Director at Momentum Cyber.
- Dagan Josephson, Head of Corporate Development at Dropbox.
After the all-time-high in Q3 and Q4 of 2020, how has your corp dev strategy changed?
Brett Simon: “It has not changed. Our strategy is focused on acquiring companies that have the teams and products that can help us provide more value to customers in areas we believe have a ton of potential. From a pipeline perspective, that means spending a lot of time building relationships with teams and getting to know their companies. The current market activity doesn’t change that. From a valuation perspective, the current M&A market obviously has an impact on comps, but that is one of many inputs we consider — it’s ultimately all about the value teams and companies add to the goals we’ll be executing on together.”
Alon Bonder: “Our corp dev strategy has remained much the same, focused on finding more ways to support our users. M&A is still a core component of that, but strategic investments are becoming another key pillar — particularly in geos that are still early in their tech adoption curve. The India Digitization Fund that Google announced last year is a great example and has already led to several fantastic partnerships.”
Dan Brown: “Our overarching M&A strategy hasn’t materially changed in 2021 vs. 2020, and we will continue to evaluate opportunities both large and small. Given the strong run-up in both public and private company valuations, we need to continue to be thoughtful about the types of companies we pursue.”
How is the uptick in M&A by SPACs changing the market?
Simon: “While SPACs could theoretically emerge as competitive acquirers, we haven’t seen that happen yet. Because most potential SPAC acquisition targets have more maturity and/or scale than the bulk of M&A targets for corporations, a lot of the SPAC activity tends to be in a different swim lane than where corp dev teams normally focus. That said, given the huge volume of SPACs that have popped up over the past year, I imagine there will inevitably be more shared interest in potential targets.”
What else are corp dev teams keeping top of mind right now?
Bonder: “Just like most product teams in the early part of 2020, corp dev teams were trying to anticipate the impact of Covid on the markets they cover. In some cases, this meant a major acceleration of existing trends (like e-commerce, streaming media, and the shift to cloud), and in others, this meant addressing newer challenges (like securing supply chains). In either case, adapting quickly has been critical. This brought corp dev teams front-and-center in strategy discussions. Product leaders have increasingly recognized that acquisitions and partnerships are often the most effective tools companies can use to quickly gain new competencies. On top of that, corp dev teams were often best positioned to see early signs of emerging trends based on their coverage of startup markets. It has never been more important for corp dev teams to make strategy and insights a core part of their remit to the companies they serve.”
Brown: “I think 2021 will be another boon for M&A. Given the strong public market performance within tech, we’ll see more public companies leverage their stock as currency to transact. Also, the amount of dry powder sitting on balance sheets at larger companies is near an all-time high. With this unique confluence of stock as currency and high cash reserves, acquirers have significant firepower to go after opportunities.”
Josephson: “The current market is dynamic, but the fundamental principles of M&A remain the same — look for great founders that have built a great product and a great team. If a company’s founders focus on those things, they’ll build a great business that will be attractive to corp dev teams.”
Why should a company consider a merger/acquisition while we’re in such a strong IPO environment?
Simon: “It all comes down to who is acquiring you. Simply put, M&A is the right path if you think you can achieve more together than you can independently. Of course, a lot influences that decision. Notably, does the company have the right culture, shared vision and commitment to enable you to achieve 1+1=3? Get to know your potential acquirer REALLY well, and make sure you can answer that question with confidence.”
Bonder: “IPOs are a great path to liquidity but can also be the longest and riskiest one. Not only does M&A offer a quicker path to realize the value that teams have built, but also a way to amplify impact by joining forces with an acquirer. For example, Google has multiple products with over 1 billion users and many founders see this as an incredible platform to build on.”
Brown: “While an IPO is a viable ‘exit’ for some companies, the ongoing rigors of being a public company, plus the heightened reporting and compliance requirements, make M&A a more attractive route for a lot of startups. Also, a merger of complementary (or even competitive) companies can be more advantageous to the acquired company vs. IPO, as they can often immediately plug into a scaled, global GTM function and leverage an established R&D org via the acquirer.”
Dino Boukouris: “There are many reasons why a company might consider M&A even as we’re in the midst of a strong IPO market. It often comes down to the type of founders (and investors) who are running the business. They may prefer to exit via M&A where they receive proceeds in exchange for all or a significant portion of their shares, as opposed to an IPO, where the company itself raises money by issuing new shares, with existing shareholders locked up for a period of time before they can sell even a portion of their shares. Additionally, some founders may not aspire to take a business to the next level as a public company CEO, with all the regulations and scrutiny that come along with the role. Or, perhaps the founder would rather cash out and truly ‘exit’ from the business to free themselves (and capital) for their next endeavor. The CEO that thrives as a company founder, building businesses from scratch, is often not the same type of CEO that thrives running a public company.”
What advice do you have for founders navigating the corp dev/M&A landscape right now?
Bonder: “Continue to build relationships with decision-makers at your target acquirers and be clear about the value your company brings. If you don’t already have these relationships, corp dev can be a great entry point, but then it becomes even more important to articulate the reasons an acquisition makes sense. Remember that corp dev teams are constantly inundated with opportunities, and the more you help them make sense of a deal, the more effective they are at finding the right sponsors and building a case internally.”
Brown: “I recommend CEOs/founders engage the corp dev team early and often throughout their company life cycle. Most acquirers will not be comfortable buying a startup with a team and product they just recently discovered. Reaching a deal is very much an ongoing courting process that is quarters, and sometimes years, in the making.”
Boukouris: “Some advice I’d give founders as they think through their potential exit strategies is to begin the process early. On the M&A front, make a concerted effort to develop relationships with potential suitors, whether through partnerships, strategic investments, or even occasional company briefings. Don’t wait until you ‘decide’ or ‘need’ to sell your company to begin the dialogue, as the courting phase of a deal takes much longer than you might think.”
Josephson: “Regardless of market conditions, founders should be proactively forming relationships with corp dev teams. Many startup acquisitions happen down the road after getting to know the corp dev team or forming a business development partnership beforehand. The earlier those relationships are established, the easier it is for a founder to propose an acquisition when they’re ready. At that point, hopefully, that startup has built relationships with several stakeholders at the potential buyer, which allows those stakeholders to be advocates for the deal.”
Thank you again to our friends who contributed to this piece — we really value your time and insights.
Have a question about M&A? Reach out here.
This was also published on LinkedIn.