IPO Downturn May Have Benefits for Tech M&A

Last week saw the first IPO of 2016 for a US-based, VC-backed company as Editas Medicine, a Cambridge, MA-based biotech company went public on the NASDAQ, with its share price climbing 13.8% in the first day of trading (click here for more information).

While this was a welcome development, the turmoil in the markets and the underperformance of several recent tech IPOs have made this a less-than-auspicious time for technology companies to go public.  In fact, January 2016 was the first month without an American VC-backed company going public since September 2011.  This is all the more problematic given the number of VC-backed companies that have raised vast sums of money – becoming so-called “unicorns” in the process – and viewed an IPO as the next logical step.

Nizar Tarhuni of PitchBook wrote an article in which he presented a list of concerns for investors given these circumstances.  One thing that we found particularly interesting was his commentary regarding the effect of the market turmoil and the IPO difficulties on the tech M&A market.  In his view, some private, investor-backed tech companies will look to strategic acquirers to achieve liquidity as an alternative to the public markets.  Furthermore, some larger companies that have already gone public will look at making more acquisitions in order to boost their top-line revenue growth amid declining opportunities for organic user growth and slumping share prices.

We at Q1 Capital agree with many of these sentiments as we have noticed an increase in the level of interest in acquisitions among the strategic acquirers with which we are in contact.  It certainly seems possible that the turmoil in the markets may end up being beneficial to the tech M&A sector in 2016.

Posted in: M&A News

Leave a Comment (0) ↓