Internet M&A – the party is over

FirstCapital hosted a breakfast seminar this morning where the topic of discussion was the state of the internet M&A market.

FirstCapital founder and CEO Jason Purcell gave the opening presentation and he had some interesting (if slightly grim) stats:

• Internet acquisitions peaked in both volume and value in the middle of last year, and Q4 was sharply down on Q3.
• Valuations have also peaked and are on their way down – they have risen over the last 4-5 years from an average of 3x revenues to peak at 13x and are now heading south quite rapidly, probably with some way to go.  (Remember though that many internet companies are acquired with little or no revenues, so whilst I’m sure it is directionally correct this stat come with a bit of a health warning.
• But at the sub $100m enterprise value level this situation is more stable, with transaction volumes approximately flat.

Comments from Sara Clemens (corp dev at Microsoft) and Rob Feldman (corp dev at News International) confirmed this trend – they say the bar for acquisitions has risen and valuations are coming down as many acquirers have stepped out of the market.  Rob even went so far as to say that there was a clear message from his Chairman not to even consider doing deals at the levels of twelve months ago.

It looks like we are all going to have to work a bit harder for our money!

Ultimately though, this doesn’t change the fundamentals of our business.  Cycles will always come and go and the important thing is to be building sound companies that can survive both the good times and the bad, then you can time your exit to maximise your position, instead of having the timing dictated to you by market conditions.