Text by Pyr Marcondes, Senior Partner at Pipeline Capital Tech.
The value of an asset, any asset, a soap or a spaceship (Elon Musk say so) depends on a number of factors, but one of the most important is how much the market is willing to pay for it.
This is valid for everything that is bought and sold, including companies.
The M&A market, as the name explains, lives off the merger, purchase and sale of assets. In this case, companies.
Because we are living in a moment of revision – unfortunately downwards – of the value of companies in this sector which, like practically everything in global economies at the moment, was also affected by the crisis resulting from the war between Russia and Ukraine. In this case, the volume of M&A activities has been reduced, as well as the value of companies that are in the process of looking for another moment in their journey through M&A.
My partner, Alon Sochaczewski, wrote a brilliant and direct article on this subject (I put the link below so you can have a look at it in full later) and he starts by saying exactly that: “We need to talk about the value of your company, the expectations and of reality. Your company is worth neither more nor less than what the market at the moment points out, be aware of that”.
Alon’s article goes much deeper into the issue and tells us – as is the case that we experience every day here at Pipeline Capital Tech – how often entrepreneurs believe that their companies are worth much more than they are actually worth. And what they’re actually worth depends on how much the market is willing to pay for them. Simple as that (read the article it’s worth it).
The point here is that this business-to-business industry is feeling the blow that all other economic sectors have been feeling, with some special characteristics.
It may be time to buy assets. Like the stock market, buy low, sell high. That’s for whoever buys it.
For those who sell, it’s time to analyze its effective value, reality check.
This does not mean that good deals for both sides cannot be done at a time like this. There are hundreds and hundreds of M&A deals being done right now and they could indeed be a good deal for both sides. This is a smart and dynamic market, more agile and adaptable than many more traditional sectors of the economy.
In addition, there is also the segment of startups and scale ups, which are the base of the pyramid of this industry, and which, many times, seem to happen in the midst of crises and scares in the economies. It remains attractive and extremely transformative right now. With war or without war.
So it’s time for reflection. Not exactly suspension of M&A movements. Always bearing in mind that the price of companies should reflect exactly what they are worth now. No more, no less.