Dealmakers See M&A Targets in Tech When Slowdown Abates
Dealmakers who gathered in New Orleans this week are hopeful that the prolonged deals freeze will thaw this year—and that the tech sector in particular holds plenty of companies ripe for acquisition.
That may be a case of optimism transcending reality. On panels and in coffee chats at the annual Tulane Corporate Law Institute conference, attorneys and bankers in mergers and acquisitions fretted about the prolonged slowdown, which they pin on tight debt markets, falling valuations, antitrust threats—and now a banking crisis. And they can’t wait for things to change.
“I think everybody wants to get busy again,” said Tony Barletta, who runs a financial documents firm, The Nuvo Group, that often does business with companies getting ready to make an acquisition or go public. “I’m kind of looking forward to seeing what’s going to replace the SPAC,” he said, referring to special purpose acquisition companies, which drove an avalanche of merger deals post-pandemic.
Anu Aiyengar, global head of M&A at JPMorgan Chase, opened a presentation by joking that she was glad to come speak at the conference since she doesn’t have much else going on.
Still, she and others argued that deal activity will eventually pick up. One lawyer who works on tech deals said startups’ cash reserves are drying up quickly, while some software firms that relied on Silicon Valley Bank’s lines of credit are suddenly short on cash.
And while disagreements about valuation have been a barrier, Aiyengar said that’s likely to change. Potential sellers that have endured a steep stock slide are getting closer to coming to the table. For now, potential buyers have to offer a price close to the seller’s 52-week high stock price to get them interested. Over time, she said, that deal premium will decrease.
“More CEOs [are] looking forward and saying, ‘I have another six painful earnings calls I have to get on. This may not be such a bad deal,’” she said.
Antitrust hurdles remain a problem. Microsoft’s potential $75 billion acquisition of Activision and Broadcom’s megadeal for VMWare have been under the microscope of regulators. “It’s more about sand in the gears. They just want to slow us down,” said Ethan Klingsberg, head of U.S. corporate and M&A at Freshfields Bruckhaus Deringer, during a panel. “If it’s a headline deal and the right client, they’re going to give us a hard time.”
Lawyers said potential sellers also fear antitrust lawsuits and busted deals, as they distract from other corporate priorities. Sellers also want to know if private equity firms have lined up all the financing they would need to make an offer.
Financing challenges don’t help. While private equity firms are flush with equity capital, some have struggled to raise enough debt to complete leveraged buyouts. Banks are rarely making loans to private equity firms for large deals because they are “sitting on a lot of the leveraged loans that resulted from the commitment they wrote in 2020 and 2021,” said Scott Barshay, chair of the corporate department at law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, on a panel.
“There’s a struggle now in the [leveraged buyout] market because of the availability of debt, not because of the price of the debt,” he added. “We have to see how the year goes to dig out of that hole.”
Meanwhile, some tech firms are reluctant to officially put themselves up for sale for fear of signaling weakness, Aiyengar said. But that doesn’t mean no tech deals will get done.
“For the majority of conversations we’re having, the largest targeted sector in this is tech,” Aiyengar said in a dealmakers’ panel. Smaller deals, below $1 billion in value, are still getting done, too. “The buyers come from all sectors, and you’re looking for a tech-enabled solution or a supply-chain solution—that’s your motivation,” she said.