The 2012 Tech M&A Report from CB Insights, based on their private
database, was released yesterday. CB Insights is the firm that worked with the
Angel Capital Assn. to produce their recent Halo report on Angel Investing. This
new report covers acquisitions of both Angel and VC backed private companies.
Conclusions, some surprising:
Globally,
2012 saw 2277 private technology companies acquired. For deals with disclosed valuations, acquirers
paid $46.8B with 30% of deals accounting for 80% of the value.
In
a big surprise, 76% of tech companies acquired in 2012 had not raised
institutional investment (VC/PE) prior to acquisition. While there were no
bootstrapped or strictly angel-funded billion dollar exits (of which there are
few in any case), it is clear that there are a lot of tech companies being
formed and sold who sustain themselves on their bootstrapping profits, angel (friends & family)
financing, etc.
While
there is much fanfare when the billion dollar exits happen, they represent 2.5%
of all private tech company acquisitions in 2012 (translation: they don’t
happen often). More than 50% of deals are for less than $50M and more than 80%
of the acquisitions are less than $200M.
Google and Facebook were the most active acquirers,
each doing 12 private tech company acquisitions
in 2012. Five of Facebook’s acquisitions were talent acquisitions. Google and
Cisco were most frequent disclosers of private company valuations.
California saw the most private tech
companies acquired in 2012, not all that surprising given that a majority of
tech investment (both deals and dollars) goes to the Golden State. However, Cal’s
dominance was something to behold as the state had more private tech companies
acquired in 2012 than the next five states combined.
Massachusetts was not a top 3 destination for acquirers. Mass remains a top market for tech
VC despite losing some of its mojo to NY which has now usurped the #2 spot. On
the M&A front, Mass was somewhat surprisingly not in the top 3 as it got
edged out narrowly by Texas.
Here in the Northeast, the number of companies acquired in each state were as follows: MA-87, CT-14, NH-10, ME-5,VT-5, RI-3. New York had 138, South Dakota had none.
Here in the Northeast, the number of companies acquired in each state were as follows: MA-87, CT-14, NH-10, ME-5,VT-5, RI-3. New York had 138, South Dakota had none.
Are
these acquisitions really good for the investors?
Where
the data was provided, the median raised was $16.6 million, the median acquisition
price was $73.5 million. For discussion
let us assume that we could buy the median investment, much like an index fund.
At
first glance one might assume that we can sell the company for about 4.4X our
investment but this is incorrect. We didn’t purchase the company; we invested,
so the founders and others also hold shares. Assuming that after investing our
16.6 million, perhaps in several rounds, we own 70% of the company. We then
sell our stake for $51.5 million, or 3.1X our investment, possibly a good
return.
An
old time venture capitalist, such as Bill Congleton who negotiated the original
investment in DEC for AR&D, would have been happy with a 3X return, as long
as it took place in three years. (His target, 3X in three years, 5X in five
years). Alas, an exit today can easily take seven to ten years with our rate of
return diminished accordingly.
We are
working with medians, so half of the time we can do better. Alternatively, we can join the Lake Wobegon Angels, where
all the women are strong, all the men are good looking, and all our investment
returns are above the median.
An
Angel’s Diary. Three decades ago, Bill
Congleton was looking at a company I had founded. Boldly, I asked his partner, John Shane, what
they might be thinking about pricing. “Bill can be tough on valuation,” replied
Shane. “After all, he once bought 70% of DEC for $70,000, and he likes his new deals to be better than his old ones.”
