It’s now very clear to me: a successful M&A exit is far more likely for entrepreneurs than the once vaunted IPO. Structural changes in the venture-IPO ecosystem over the past 15 years have made it increasingly difficult for young companies to successfully tap the public markets to fuel their continued growth. While this fact has significant negative consequences for long-term job growth in America, it does not leave startups without hope. Increasingly, the exit pendulum has swung in long-term favor of M&A transactions as multinational corporations have retuned their own innovation models in favor of acquiring outside companies versus internal development of innovation. As a former CEO, I tend to shy away from strategies that require events to occur over which I have very little visibility, and absolutely no control, to make my business plan work. Building startups for acquisition has always been a cornerstone strategy of Allegis Capital and we have had great success, but now acquisition is becoming the only viable strategy for many of today’s start-ups.
The good news is that the M&A market, which has been showing increasing signs of vigor in recent months, is likely to post a healthy showing this year and soar in 2011. This was the prediction of Jamie Montgomery, CEO of Montgomery & Co., at the May 2010 Allegis Capital limited partners meeting in California, and it makes sense to me. Acquisitions of venture-backed companies have always been strong—about 450 a year, on average, compared to a long-time average of 85 venture-backed IPOs annually. This year, Montgomery predicted the number will be even higher—450 to 600—and then soar to 750 to 900 in 2011, or twice the peak between 2005 and 2007. “I still think 95 percent of venture-backed exits will be M&A transactions over the next five years,” Montgomery told our audience.
To read the full, original article click on this link: Dream of an IPO, but Plan for an Acquisition | Allegis Capital Blog
Author: Bob Ackerman