A leading tech dealmaker predicts M&A and fundraising will make a comeback this fall in a big way. These are the deals and sectors he’s betting on.

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In March, when the world was forced to reckon with the reality of a pandemic, the outlook looked grim. Public equities declined more than 30%, revenues decreased for both public and private companies, capital access diminished, mass layoffs ensued, and companies began to die. Venture capital and private equity investors froze their capital deployment and spent months focused on helping their own portfolios weather the storm. Strategic acquirers, dealing with their own decrease in revenues and stock prices, ruled out M&A in the face of growing uncertainty. 

Now, just six months later, public markets are testing record highs, investors have ramped up investment with an unusually active month, and strategic acquirers, at least the many I’ve spoken with recently, are aggressively on the hunt for M&A. 

During the height of the pandemic, investors and strategics alike struggled to do deals — the uncertainty was too great, the risk was too significant, there were other pressing priorities, and they couldn’t do deals without meeting management teams in person. Yet, driven by their own unique tail winds and considerations, we are at the start of a massive resurgence of dealmaking, with August — a typically painfully slow month for deals as the world enjoys their summer holidays — having already seen tremendous activity in capital raising.

When the pandemic first hit, the only deals being done were the ones that had already been negotiated and papered. Those deals took longer to get done and some were renegotiated, but for the most part they all got through. The second wave of deals were where investors and buyers already knew management teams well, which made doing diligence over Zoom as opposed to in person that much easier to swallow. The third wave of deals are new processes, or deals that were put on hold when the pandemic hit. Investors and buyers have become more comfortable with doing diligence from afar and embracing the systematic risk in the market. That comfort is being accelerated by a pent-up level of deal demand given the months of inability to transact.

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On the flip side, a flock of companies are coming to market this fall, as management teams have had to delay their plans for months. The combination of unusually aggressive investors eager to make up for lost time and an unusually high volume of target inventory coming to market, equally as eager to transact, is a recipe for elevated levels of transactions. Management teams with COVID-19-specific or time-sensitive opportunities have an advantage with regards to standing out in an environment with lots of assets on the market.

Venture capital and private equity

Pre-COVID-19, venture capital and private equity were facing a systematic challenge. With ever growing levels of dry powder — a company’s cash reserves that can be utilized under economic stress — and a limited pool of investible target companies, deals were getting increasingly competitive and yielding premium valuations. Post-COVID-19, that systematic challenge has magnified significantly. Dry powder has grown, the number of …read more

Source:: Business Insider

      

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