Q1 M&A was virtually non-existent with just two announced deals. Both deals were smaller, cloud/SaaS consolidation deals with modest valuations. There are a couple of factors worth mentioning that can be attributed to the dearth of M&A in Q1.
- Fundamental valuation disconnect between what strategic acquirers are willing to pay and the high funding valuations being won by storage start-ups. Large incumbents are closely tracking disruptive start-ups and have M&A as a key part of their growth strategy. They want to do deals but are finding it hard to match their valuation outcomes with what start-up management or investors think they are worth.
- Too early for many start-ups to consider M&A – Flush with new rounds of funding with product launches just occurring or soon to occurring
- Buyers taking a wait and see approach – a storage “Bubble” in venture funding and planned IPO’s has led some buyers to take a wait and see approach
M&A will likely improve in Q2 and for the remainder of 2014 but will be below 2013 which had 25 deals worth $9.5B in consideration. We do see some solid exits occurring in 2014 but expect things to really heat up in 2015 as many start-ups will approach an inflection point of going for the IPO “home run” or taking an early M&A exit.
Storage related venture funding rolls on with $333M across 8 rounds with an average of $41.6M per round. The quarter was dominated by Actifio, Nutanix and Tintri combining for $276M in funding, representing over 80% of the total funding for the quarter.
2014 could easily be another billion dollar venture year, following 2013 and 2012, each with roughly a billion dollars in storage venture funding. However, VCs will be closely watching the planned IPO’s for 2014 and also M&A exits to see if the market will support record setting later stage large rounds with record setting post-money valuations.
For comments and questions, please contact John Rotchford, Managing Director at 760-944-3522 or firstname.lastname@example.org.