From Shutdowns to Strategic Buys: The Changing Landscape of M&A in 2024
Unveiling 2024 M&A Trends, New Investment Courses, and the Launch of LPmagnet.com
Hi Gang,
We’ve got an insightful analysis on the evolving M&A landscape in 2024 and some exciting updates to share with you, including the launch of LPMagnet, which is a way for investment firms to use AI to source LPs quickly, easily and affordably.
[Note: the team at LPmagnet is not available to meet until after Thursday, 5/23/24].
From Shutdowns to Strategic Buys: The Changing Landscape of M&A in 2024
There’s a recent report from a large fund admin indicating a record number of startups shutting down and it will likely have significant implications for the M&A market over the next 90 days. Here are my hot takes on what this could mean:
Increased Acquisition Opportunities
1. Fire Sales and Discounted Valuations: Many startups shutting down can lead to more distressed sales. Companies with valuable technology or customer bases who lack the runway to continue operations might get sold at discounted valuations. This creates opportunities for acquirers to purchase assets at a lower cost.
2. Talent Acquisition & Acqui-hires: With startups shutting down, there’s gonna be a surplus of skilled employees looking for new roles and opps. Larger companies or startups with strong cash positions may capitalize on this by buying companies mainly for talent.
Shift in Buyer Dynamics
1. More Active Strategic Buyers: Established companies looking to expand their capabilities quickly may become more active in the M&A market, quickly. They can leverage this opportunity to acquire tech, market share, or talent that would be more expensive or time-consuming to develop in-house.
2. Private Equity Interest: Several PE firms are known for their liquidity and interest in acquiring distressed or high-potential startups. Firms like Blackstone, KKR, and Bain Capital have big capital reserves and a track record of making strategic acquisitions, fast.
These firms may find attractive deals to consolidate struggling startups into their existing portcos, enhancing their value through synergies and operational improvements. Additionally, firms like Silver Lake, which focuses on tech investments, and Vista, known for software and data-focused acquisitions, may also be particularly active in this market.
Impact on Valuations
1. Downward Pressure on Valuations: The surge in available startups for acquisition is expected to drive down overall valuations. In deep tech, valuations might drop by 20-30% as companies with cutting-edge technology but insufficient runway face fire sales. SaaS startups could see a 15-25% decrease in valuations, with many seeking quick exits. AI companies might experience a 25-35% reduction, given the high competition and capital intensity in the sector. Buyers will likely leverage this increased supply to negotiate significantly lower prices.
2. Valuation Adjustment Expectations: Startups looking to be acquired may need to adjust their valuation expectations. Sellers may need to be more flexible and realistic about their company’s worth given the market conditions.
Due Diligence and Selectivity
1. Heightened Due Diligence: With more opps available, acquirers may become more selective and thorough in their due diligence processes. In 2024, acquirers will demand detailed financial audits, extensive customer and revenue verification (read: random customer verification), and deep dives into technical and cybersecurity capabilities, which were less scrutinized in 2021-2022. Additionally, startups will need to provide comprehensive documentation on regulatory compliance, especially in sectors like AI and SaaS.
2. Increased Focus on Sustainability: Acquirers will prioritize startups with sustainable business models and clear, actionable paths to profitability. For deep tech and AI companies, VCs and PE investors are seeking business models that project profitability within 24-36 months. In the SaaS sector, the expectation is even shorter, with a desired path to profitability within 12-18 months. These timelines are significantly stricter than those seen in 2021-2022, where longer periods of operational losses were more acceptable as long as growth metrics were strong. These stricter timelines reflect a shift in investor sentiment driven by recent market volatility and economic adjustments.
3. Rationale for This Change: The shift towards more rigorous due diligence and shorter paths to profitability is largely driven by the economic environment and investor sentiment. The M&A market in 2023 experienced significant downturns due to macroeconomic uncertainties, inflation, and rising interest rates, which have made investors more cautious and selective. As a result, there is a heightened emphasis on making sure investments are sound and can quickly return to profitability. This shift aims to mitigate risks and secure better returns in a more volatile market.
For more insights, read the full blog post [here].
Soft Launch of LPMagnet
We are excited to announce the soft launch of our new website, LPMagnet!
LPmagnet is tailored for smaller investment firms that need to quickly and affordably secure Limited Partners (LPs). Our platform offers:
- Fast LP Acquisition: Efficient processes to attract and engage LPs.
- Cost-Effective Solutions: Affordable pricing to meet your budget needs, so you do not have to lay out a lot of budget to purchase a great-looking website with full AI integration.
- User-Friendly Interface: Easy navigation and management of your LP campaigns.
As a special offer, LPmagnet.com is completely free for any current Lead Zeppelin customer who is on a current program of 6 months or greater in duration.
Explore the website and take advantage of our early bird offers!
Thank you for your continued support. We look forward to helping you navigate the changing landscape of venture capital, private equity and M&A, and providing you with the resources you need for success.
Upcoming Series of Courses For GPs and Investor Relations Pros
GPs and Investor Relations Leaders,
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Investment in Excellence
We're offering these transformative series at a nominal fee, solely to ensure commitment and attendance. And because we believe in equal opportunity for excellence, the entire series is available at no charge for those who haven't had W-2 income in the past 18 months. We're committed to supporting your growth, regardless of your current financial standing - just reply to this email if you have scholarship needs and feel free to forward this email to anyone who might need a scholarship.
Ready to redefine the way you engage with LPs and close deals? Dive into the full course outlines on our blog post [right here].
When you're ready to take the leap, secure your spot with ease:
- General Partners: Command your market with confidence. [Enroll now].
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[If your firm purchases any two seats, you will receive two seats at no charge, which are for use during the June 6 series. They can be used on either session. See here for scholarship eligibility.]
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Best regards,
Adam & The Lead-Zeppelin Team 🎸