The Takeover Targets Emerging Out of IPO Dead Ends
The Takeaway
• Tech firms are focusing on M&A discussions after IPO rebound fell short of expectations
• Cybersecurity, consumer startups are among likely acquisition targets
• Confidential IPO filing announcements could also be ‘for sale’ signs, bankers say
To that end, we updated our Tech IPO Tracker to highlight the likeliest takeover targets among the private companies we’ve been keeping tabs on. Cybersecurity firms such as Snyk, and consumer startups like canned water company Liquid Death likely now make more sense as acquisition targets, as do companies that broadcast IPO ambitions in recent years but have grown quiet on that front since.
It’s common for companies that hire bankers to work on a potential IPO to simultaneously explore getting acquired in what’s known as a dual-track process. But this year, early hopes that IPOs would be preeminent have died thanks to market volatility due to tariff and other macroeconomic uncertainty.
“We came into January excited about having a really active IPO market,” said Kristin DeClark, global head of technology investment banking at Barclays. That was a change from the prior three years, when companies were more evenly balanced in discussing M&A versus IPOs.
Now, companies that were confident in pulling off an IPO this year are “back reconsidering strategic options,” DeClark said, and some of her pre-IPO clients have started to more seriously explore selling themselves in the past few months.
High-profile tech IPOs this year includes cloud computing company CoreWeave, which went public in March, while trading app eToro and digital health company Hinge Health debuted in May. But IPO market activity is still far below average.
Still, an acquisition isn’t necessarily an easier route than an IPO. That’s especially true for private tech companies that landed frothy valuations in 2020 and 2021, which are likely in for a valuation cut either way. DeClark said most venture-backed companies are still seeking valuations that are higher than what strategic buyers are willing to pay.
Cybersecurity is one area where buyers and sellers are mostly on the same page, however. That’s a sector with four candidates on our IPO tracker, including Cato Networks and Snyk. “It’s easier for large strategics to justify paying a higher multiple for private cybersecurity assets because public companies in that sector are trading at higher multiples,” DeClark said.
The biggest public cybersecurity companies including Cloudflare, CrowdStrike and Palo Alto Networks are all trading at much higher revenue multiples than the average software company, according to data from Meritech Capital Partners.
And Google’s $32 billion acquisition of cybersecurity company Wiz, announced in March, valued the business at a steep multiple of around 45 times projected revenue. Google’s first attempt to buy Wiz in a deal valued at $23 billion fell through in 2024, and Wiz had told employees that it intended to pursue an IPO instead.
Venture-backed firms selling consumer products like clothes and food are another area where we’re likely to see acquisitions. That could make Liquid Death, which hired bankers and at one point was aiming for a 2024 IPO, a likely acquisition candidate. Kim Kardashian’s Skims, which this year announced it was teaming up with Nike on new products, is another brand that could be a target for a big consumer buyer.
Broadly speaking, consumer companies that grow quickly based on the success of a single product might be better suited for M&A than an IPO, said Cully Davis, head of growth equity at Citi, who declined to comment on specific companies. “Consumer tastes can be fickle and competitive offerings emerge,” he said, adding that consumer companies with just a few products may fit well into a bigger acquirer’s business.
“We are not selling Cato,” a company spokesperson said, adding that “as a high-growth company, we evaluate various public and private funding alternatives including an IPO.” Snyk, Liquid Death and Skims did not respond to requests for comment.
Some one-time IPO candidates have been more active in feeling out potential buyers in informal deal talks since the beginning of the year. Another tack they can take is using public announcements to send signals to potential buyers in the market, bankers said, including opting to announce that they have filed confidentially with the Securities and Exchange Commission to go public.
Confidential filings—so named because the IPO paperwork isn’t accessible to the public—trigger a process where the SEC and the company discuss what will be in the final IPO filing. Companies are not required to announce when they make these confidential fillings, and many don’t. In fact, companies can file confidentially and never move forward.
DeClark noted that some confidential filing announcements are akin to posting a for-sale sign. “By telling the world that the company is moving towards an IPO, it serves to shake out any obvious strategic inbound interest without an official ‘for sale’ signal,” she said.
Crypto company Circle had announced in January of last year that it filed confidentially for an IPO and reportedly held informal deal discussions with Coinbase and Ripple. No deal was ever reached, however, and Circle went ahead with launching its IPO late last month.
Several other companies on our Tech IPO Tracker announced confidential filings in recent years but have since gone quiet.
Design software company Figma announced in April it had confidentially filed. Figma had previously agreed to be bought by Adobe for $20 billion, but that deal fell apart in 2023 after antitrust reviews from regulators. And fintech company Figure announced in March 2024 that it had filed its IPO paperwork.
Many of the biggest companies on our Tech IPO Tracker are likely to stay private for some time. Databricks and Stripe, for example, carried out major deals this year to cash out existing shareholders, taking the pressure off to go public any time soon.