Investors and advisors had wishfully predicted 2024 would be a big year for mergers and acquisitions, as companies are sitting private for much longer and investors’ need for liquidity is growing. But so far this year, M&A hasn’t gone gangbusters — and though it has “definitely picked up” more recently, the market isn’t hot, says Simon Miremadi, a software and digital commerce-focused managing director at boutique advisory firm GP Bullhound.
“I was constantly on the phone in the first two quarters having update calls about what our pipeline looks like, when the next thing is coming to market, when we can expect it, that we should please call,” he tells Sifted. But some projects that were in the works never made it to market, as companies have been fearful that they won’t be rewarded as “Class A” (i.e. top notch) assets by investors.
“Q2 was a lot slower than people expected from conversations they had in Q1; now, post-summer, I hear it’s continuing.”
But some deals are still happening — for one, GP Bullhound advised on German sports and wellness platform Urban Sports Club’s acquisition of fitness platform myClubs in August — and bankers like Miremadi predict a few big trends could emerge or pick up steam in the coming months.
From HR tech consolidation to PE funds buying VC portfolios
Miremadi is seeing a lot of action within sportstech, and expects M&A to continue to be strong in that sector — as some companies like Urban Sports Club or Wellhub are using an aggregator model. Elsewhere, “I think consumer topics are increasing in popularity again, and if I look at the pipeline of stuff that’s coming to market, there will be more; some of the fear around investing into consumer is gone,” he says — before quickly adding: “That’s not true for e-commerce. That’s still dead.”
Another sector he says he’s seeing more interest in is the “end-of-the-customer-experience chain” — for example, companies like customer service automation startup Parloa in Berlin. “I would assume to see more M&A in that as well.”
HR tech — think HR management software platforms like German’s Personio or Spain’s Factorial — has already been a hotspot for consolidation, and will continue to be a strong area for M&A, Miremadi believes. He’s seen a “significant uptick” in interest in general corporate benefits startups, because retaining employees has become a big challenge for big corporates and startups alike. “Standard solutions to serve the benefits of these employees are in high demand, but the provider landscape is still vast, and now the first big consolidators are materialising.”
One other area Miremadi sees primed for more deals? Industrial software applications that might be snapped up by German auto OEMs, or parts manufacturers. “Our automobile OEMs are under pressure,” which is creating the impetus for them to implement software quickly. Though Miremadi believes full-fledged industrial software M&A for these auto parts manufacturers may still be a little way away, he suggests they’re now more open to integrating software solutions compared to building them in-house. That “drives growth in that sector that was long awaited, and that will see funding and M&A flow into it,” perhaps even in the fourth quarter of 2024 or next year.
But outside of sectors, Miremadi sees another big trend continuing: VC fund M&A and secondaries. Sifted has reported on some of the VC acquisitions in the last year — including General Catalyst’s merger with Berlin firm La Famiglia, and UK firm Molten Ventures’s acquisition of VC Forward Partners. Molten Ventures also acquired a chunk of VC Seedcamp’s third fund early this year.
Miremadi predicts there will be more PE funds or venture growth funds “exchanging portfolios” or “buying out” venture portfolios moving forward, particularly as VCs grow increasingly desperate to realise returns — a trend that more investors are betting on. VCs won’t be able to take all these companies public, but if they have one company that’s performed very well and two that are perhaps average, the “blended [valuation] multiple might still look okay to LPs,” he says. VCs could then sell those three stakes together to a buyer like a PE fund, which might deem that combined valuation attractive enough and which may see some synergies that the VC fund as a minority shareholder wasn’t able to capitalise on. “That’s the trend that I see,” he says.
But PEs aren’t the only buyers in the market. Miremadi is also seeing more strategics (as in, big corporates) having M&A conversations right now — although many of those have yet to materialise into real deals. “Potentially we have a very back-loaded 2024 and it ends up being a much better ’24 than we all expected,” he says, but, with lengthy due diligence, the deals still take a “little longer than we thought.”
Read the orginal article: https://sifted.eu/articles/m-a-predictions-vc-banker/
