July 10, 2023 | Insights

Trendlines: It Was the Best of Times, It Was the Worst of Times

In our monthly growth tech newsletter, FTFL, we have delved into a wide range of topics where tech and finance intersect: layoffs, unicorns, down rounds, secondaries, records, SPACs and microcaps. This month, we analyzed the state of key growth tech transaction trends.


1) Has Tech M&A cratered in 1H23?

Our Take:

  • The YTD stats that have been published by many folks are not pretty, but it’s important to realize that all data point to the fact that we feel so bad because 2021 felt so good
  • From 2016 to 2020, Tech M&A deal count grew on average 3% per year, and never more than 8%. In 2021, it grew 51%
  • Aggregate transaction value nearly doubled from $529B in 2020 to $1.05T in 2021


2) Have Tech multiples cratered in 1H23?

Our Take:

  • While the Nasdaq is up ~30% YTD, from a multiples perspective, it ain’t 2021 no more
  • For companies in the NASDAQ-100 Technology Sector Index (NDXT), 1H23 revenue multiples have been in the 6x-8x range, down ~35% from the 10x-12x highs of 2021
  • Narrowing down to recurring software revenue, the BVP Cloud Index shows 1H23 revenue multiples in the 6x-7x range, down ~60% from the 16x-18x highs of 2021
  • Median valuation / revenue for Tech M&A deals in 1H23 was 3.09x, down 17% from 3.71x in 2021
  • We’ve lived through several cycles over the past 25 years. As we’ve seen time and again, changes in public company multiples take at least 2 quarters to find their way into private company valuations. We are now 5 quarters past the start of the decline – Tech and M&A multiples have settled
  • Our final take on 2021: don’t cry because it’s over; smile because it happened


3) War in Ukraine, rise in global inflation, aggressive rise in interest rates, failed banks – is there zero leverage to be had for PE buyouts?

Our Take:

  • PE LBO debt fell from 62% of enterprise value in 2013 to 45% in 1Q23
  • However, PE buyers as a % of tech M&A has remained flat at ~33% from 2019 to 1H23


4) Why do PEs keep saying “platforms are not coming to market”?

Our Take:

  • Add-ons have steadily risen from 59% of all PE deals in 2013 to 76% in 1H23, indicating that founders with meaningful EBITDA are sitting and waiting, while PEs bulk up their existing investments


5) Have VC’s pockets completely tightened up?

Our Take:

  • COUNT: 1H23 US VC deal count was at 6,514, its lowest level since 2H18, and down 34% from the 1H22 high of 9,847
  • VALUE: 1H23 US VC deal value was at $85.6B, its lowest level since 1H20, and down 54% from the 2H21 high of $184.3B
  • UNICORNS: 2023 Unicorn formation is on pace for 50 this year, which would be its lowest level since 2017, and down 90% from the 2021 high of 517
  • We stand by our February analysis, predicting 4Q23 as the peak of venture down rounds


6) Is the party over for big investment banks?

Our Take:

  • M&A banking fees have followed the M&A volume trend, returning to pre-pandemic levels
  • Over 11,000 reported layoffs among top banks Goldman Sachs, Morgan Stanley, JPMorgan, Barclays, Citigroup, Bank of America and Lazard
  • Middle market and boutiques like Raymond James, Moelis and Evercore have not suffered the same fate – and some of us continue to expand and hire


This article appeared in our July 2023 issue of From the Front Lines, Bowen’s roundup of news and trends that educate, inspire and entertain us. Subscribe here.

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