The public markets usually get all the attention when it comes to exits, but acquisitions of venture-backed companies have been rapid-fire this year, with 2021 set to outpace the previous three years.
So far this year, there have been 1,070 acquisitions of venture-backed companies with a reported total of $91.9 billion, according to Crunchbase data. We’re not even halfway through the year yet, but that puts us on pace to surpass 2018 (which saw 1,945 deals with a reported total of $129.9 billion), 2019 (1,946 deals with a reported total of $87.7 billion) and 2020 (1,692 deals with a reported total of $154.9 billion).
There are a few reasons for the surge in mergers and acquisitions, according to Natasha Allen, a partner at the law firm Foley & Lardner LLP who works in the firm’s venture capital, M&A and transactions practice. Capital is cheaper now, there are “pent up dollars” to spend, and perhaps most notably, the COVID-19 pandemic put a lot of deals on pause last year that are now coming back into play.
While M&A activity in the private sector appears to be busier than ever, it’s not quite the same in the public markets, according to Patrick Healey, founder and president of Caliber Financial Partners, a financial adviser firm. Putting aside SPAC deals, stock prices have been rising.
“As companies’ stock prices get pushed up higher and higher by forces in the market, you expect the level of acquisitions to be reduced,” Healey said.
The pandemic accelerated the need for digital transformation, and now companies have a greater need to innovate through M&A, said Michael Torosian, a partner in the corporate practice of the law firm Baker Botts, who represents private companies and VC firms. And with so much capital in the market, there’s a lot of competition among buyers, while startups looking for an exit have more options on what path they want to pursue.