Tech companies expected to see ‘a number’ of private equity M&A deals in 2023: Analyst
- Private Equity
- December 30, 2022
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Greycroft Board Partner and former Pinterest Head of M&A Kamran Ansari joins Yahoo Finance Live to weigh in on the state of fintech, B2B payments, and M&A deals in the tech space.
SEANA SMITH: It has been a brutal year for tech stocks, and the NASDAQ falling more than 30% since the start of the year, its worst year that we’ve seen since 2008. Now the drop coming as major sector players, including Meta and Amazon, have both lost more than 50% of their market cap.
Joining us now to discuss the outlook for the sector for the new year, we want to bring in Kamran Ansari, Greycroft board partner and former head of M&A at Pinterest. We also have Yahoo Finance’s Allie Garfinkle joining the conversation. Cameron, it’s great to see you. So let’s start with the selloff that we’ve seen within the sector over the last 12 months. Looking out into the new year, do you think things are going to turn around?
KAMRAN ANSARI: I mean, I think so. Certainly, as we get into kind of Q1, Q2, the valuation should come back. And I think you’re going to see some of these stocks that have been oversold, particularly in January, as investors get back into their chairs and start looking at these things and trying to figure out where there’s opportunities.
The mega-cap names like Amazon, like Facebook, Alphabet, Apple, I think these names are going to have a nice year. They’re not going to get back, I think, where Amazon and Meta were. They’re not going to double, but I think you’re going to see nice gains, maybe 15%, 20%, 30% in ’23, as some of these names have been certainly oversold.
ALLIE GARFINKLE: Kamran, Allie here. I’d love to start with the IPO market. You’ve identified SpaceX and Stripe as bellwethers there, I believe. Why, and what were you looking for from them, as they potentially move towards an IPO next year?
KAMRAN ANSARI: Sure, well, look, we had about 1,000 or a little more than 1,000 IPOs in 2021. 2022, we’ve seen basically half that number. So the market’s been really quiet on that front. And in the tech space, I think you have a number of companies, SpaceX and Stripe, I think, being the biggest and most anticipated, probably the most IPO ready that have been thinking about it and putting things in place for years to be able to make that happen.
But there are many others, too. You have Instacart that has announced that they’re going to come out. I think the CEO said, we don’t need a perfect window to come out. We just need a window, an opportunity. They’re not looking for the perfect valuation. I think they’ve cut their internal valuation from $40 billion down to 10. And I think they’re being realistic about the market expectation. And that’s a business also that has $2 billion in revenue and has turned profitable. So I think they’re well positioned, I think, to come out.
And then all the other companies that are really in the pipeline, I think, in the tech space, other than Instacart, which is, obviously, more of a consumer e-commerce business, are very well positioned B2B companies. You have Databricks, which is a database management company, Arctic Wolf, these companies that are really more B2B software. Gong, just a B2B kind of sales tool, Redis. And these are all well known kind of well-positioned companies that I think you’re going to see probably IPO, maybe not in the first quarter or two of the year, but Q3 and Q4 for sure, I think you’ll see some of these names start to come out.
SEANA SMITH: Kamran, let’s talk about the B2B space because I know you have currently backed a number of companies within that industry, Credit Key, Hopscotch, Coast, just to name a few of those. Talking about the growth opportunity for B2B going forward, how do you see that?
KAMRAN ANSARI: Sure, well, look, most of the companies that people are familiar with today, particularly the public companies in the fintech and payment space, you think about Stripe, which is not public yet, but obviously, Square, now called Block, PayPal, Venmo, Braintree, Affirm, all these companies, what they effectively do is help consumers pay a business or they help consumers pay each other.
None of these companies really, at their core, help businesses pay other businesses. There are really only a couple of publicly traded companies that do that at scale. You have bill.com, Coupa, which is just being acquired right now by Thoma Bravo off the public market, and maybe FLEETCOR, which is trucking and business payments in that department. But there are very few companies at scale publicly traded that do B2B payments.
And yet, certainly, on the e-commerce side– we think about digital payments from businesses to other businesses– that’s a much bigger market than consumer. So all these companies that, today, really power the infrastructure or the backbone of the consumer e-commerce market, which, these days, I think the latest numbers is like $4 or $5 trillion, that’s obviously massive. But the B2B market is estimated to be double that or more. So I think you’re seeing the opportunity really be to help businesses, [INAUDIBLE] businesses, particularly digitally and an e-commerce kind of point of sale setting.
ALLIE GARFINKLE: Kamran, talk to me a little bit about M&A because much in the way that this year has been a slow year for IPO markets, it’s also been a pretty slow year for M&A. You mentioned Coupa and Thoma Bravo. That’s kind of one of the big marquee deals that’s sort of come out of the year. What are you expecting to see in terms of dealmaking in 2023?
KAMRAN ANSARI: Sure, well, look, I’ve actually been surprised that there haven’t been more deals because you have a combination of a lot of dry powder, both in terms of the mega tech names like Facebook and Google and these others, so just giant cash stockpiles, and you have private equity firms with very large cash stockpiles of funds they’ve raised. And by the same token, you have valuation declines, both in the public market and the private market. So I think the opportunity is really ripe right now in the coming months for us to see quite a few M&A transactions happening.
And look, 2022 was not crickets. I mean, there were some very, very large deals that were announced– Microsoft, Activision, the acquisition of VMware by Broadcom, many others. And these are large deals– Figma, which Adobe is looking to buy. These haven’t closed, obviously, and the Activision-Microsoft deal is now under some FTC review. So we’ll see what happens there. But 2022 had a handful of these deals announced.
But my suspicion is that going into the new year, Q1, Q2, you’re going to see a number of additional deals announced, particularly from both private equity firms that operate in the tech space, like Thoma Bravo, like Vista, like Silver Lake and these folks, as well as the large cap tech buyers themselves, like Amazon and Salesforce and Oracle and these companies.
SEANA SMITH: It certainly makes sense with so many of these tech companies sitting on lots of cash. Kamran, I also want to get your thoughts on Meta because like we were discussing earlier in the show, the stock’s off more than 60% since the start of the year. A lot of investors are questioning this big bet that Zuckerberg and company have made on the Metaverse. Do you think we might potentially see a pivot from this in the new year?
KAMRAN ANSARI: I think you might. I mean, I think the numbers even came out that the total sales of VR devices dropped, I think, 1% or 2% in 2022 versus 2021, which is surprising, right, when you look at all the buzz in that market, all the new devices that have come out. There is a lot of anticipation that in the new year, you’re going to get competition to Meta in this space from Apple, HTC, and Sony, each of which is expected to release its own kind of VR/AR device.
So you’re going to see increased competition. You’re going to see a market that’s not really growing particularly well. And Meta has invested so much money in this space. I think in just the first nine months of ’22, they lost something like $9 billion on their VR division, which is called Reality Labs. So, in the scheme of the overall business, this is– it’s not going to cripple Meta, but it’s really hampering their overall profitability.
They went– on a quarterly basis in Q3, they had $27 billion in revenue, $4 billion in net income. The prior year, they had had almost the same revenue, but double the net income. So I think the losses are mounting because of the Reality Labs division. And you can kind of attribute a lot of that very clearly in Facebook’s numbers to how they’re performing. But Reality Labs was kind of a drain on the overall business. And it’s not generating the revenue that you would expect it to.
SEANA SMITH: Bold prediction, but we like it. We’ll see whether or not it happens in the new year. Kamran Ansari, great to have you. And of course, Allie Garfinkle, thanks so much for hopping on here as well.
KAMRAN ANSARI: Thank you.