Over the last 10 years many in the technology industry have heard of and used the term “digital transformation” to support their case to a) move to the cloud, b) revamp old systems, c) leverage new technologies such as IoT (Internet of Things) or Blockchain or d) replace older internal IT systems to newer “born on the cloud” technologies.
In December 2019, I spent time talking to 21 corporate development leaders in mainline industries such as finance (banks, insurance), healthcare (providers) and manufacturing (automotive) to get a sense for their priorities.
The big takeaway from my discussions is 2020 will be the year that many startups founded between 2011 and 2019 will get acquired by companies in their industry. There are 5 major reasons why they believe this to be true.
- The stock market is at all time highs, valuing their stock significantly, which gives them lots of optionality to purchase startups with stock instead of cash. Many anticipate flat to lower gains in the stock market this year.
- Board level discussions around moving quickly before high valuations get even more frothy have been asking corporate development teams to come up with options quicker. While there are multiple stories of unicorns with lower valuations in the public markets (e.g. Uber, Lyft, etc.) the private markets are still richly valuing their companies.
- Many CEOs fear being disrupted by early stage startups more in “mindshare” and “eyes of the customer” than necessarily in revenue.
- Related to stock prices, debt financing is still relatively cheap and widely available, making it an easy option for larger, cash flow rich companies.
- Over the last 5 years (2015 – 2019) there has been a rise in corporate development roles within large companies and an increase in product or business line executives taking over the role from a previously “finance” executive. This has led to changes in the way “strategic” acquisitions are considered versus financial transactions.