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One big thing
Banker to adtech/martech Terry Kawaja shared this tweet about tech M&A in the roaring 20’s.
And it is most of the new news each week, acquisitions all round. And it is exactly like this image, bigger fish picking up a smaller fish, who had already scooped up several smaller fish. Digiday this week dug in to how say the likes of S4 Capital structure these deals, half equity, half cash. With the view of attracting entrepreneurs who want to keep building.
The flow on effect is that M&A creates opportunity in the market. Seasoned entrepreneurs invest in the new and up & coming. Staff that favor the chaos of the startup move on. But those that excel in bigger companies swoop in to the acquired company. Each with their role to play.
With the influx of cheap capital, there is still a lot of incentives for more acquisitions to happen. If you can access low interest rates, a $100m acquisition can cost only a few million each year (if paid solely with debt). But if you do half cash and half equity. You are striking a $100m deal, but paying out $50m cash. That cash, also may be held to milestones, under which cash is released at each completion. So now, you’re talking $20-$30m upfront for a $100m deal. In turn, the cost to service that capital has dropped.
Then, you look at the business itself, it has been acquired because there is reasonable confidence of it adding value elsewhere OR you believe you can grow it. And if you do that, the acquisition can pay for itself, or at least cover the cost of financing.
That’s how a $100m acquisition could be funded for free. And that’s why we’re seeing so much activity, as creative minds find new combinations.
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