With Wall Street largely closed to new companies since early last year, there's been wide expectation there would be an especially active merger-and-acquisition market involving late-stage startups as venture investors sought some way of realizing their investments.
That hasn't happened.
In fact, in the first quarter, the combined value of all the mergers and acquisitions involving venture backed companies was just $3.7 billion, according to data from PitchBook. That was the lowest quarterly total in 10 years.
That drop came after an already depressed deal market last year. The total value of all mergers and acquisitions involving venture-backed companies was $39.6 billion in 2022, which was the lowest total since 2015, according to PitchBook.
The fall in merger-and-acquisition activity is hitting the unicorns — startups worth $1 billion or more — particularly hard. There were only five acquisitions of unicorns in 2022, down from 24 in 2021 and 17 in 2020.
Even in good times, there are few companies that can afford to buy a unicorn, PitchBook venture analyst Vincent Harrison told Silicon Valley Business Journal. Right now, many of those companies aren't in a good position to make such acquisitions, as they tend to be cutting costs in the face of economic uncertainty.
Many potential acquirers are opting to buy back company shares to shore up their sagging stock prices instead of looking for takeover targets. Share buybacks hit a record high of $1.2 trillion in 2022, according to PitchBook.
Another thing weighing on acquisitions: antitrust regulators are looking more critically at such deals than they have in the past and have even filed several suits lately to block them.
"These crackdowns are likely to continue," Harrison said.
That all adds up to a big problem for venture investors, because there are now 700 unicorns worldwide, according to Harrison. The combination of having public markets inhospitable to such companies and seemingly few acquirers means there's no easy way for those investors to cash out.
"All of this puts a lot of these unicorns in a really interesting position. Where do they go?" Harrison said.
