Is FIRRMA the next GDPR? Our Merrill Insight™ audience certainly seemed to think so, with 82% saying they were somewhat to very concerned about the new CFIUS regulations’ impact on cross-border activity during our October 4 live-video panel Hot or Hype? Trends in Technology M&A. “Transactions that involve cross-border and CFIUS issues are going to cost more, they are going to extend the regulatory approval cycles, and it will keep the lawyers busy,” panelist Jim Ackerman, Vice President of Corporate Development for Flex Ltd, summarized.
Hear more about the impact of these regulations from Ackerman and panelist Ivan Schlager, head of Skadden Arp’s National Security practice.
Here are 7 more top takeaways from our panel:
1. Positive M&A market sentiment is down 5% to 65% from earlier this year when we last asked this question. The slowdown matches what we’ve heard from dealmakers on the ground, who are increasingly modeling recession risks into deal valuations. Nonetheless, from a regulatory perspective, “We’re in a deal-friendly environment,” Schlager said during the panel.
2. Artificial Intelligence (AI) is an industry-agnostic tool to help companies beat their competitors, said panelist and Array Ventures co-founder Shruti Gandhi. She pointed to Home Depot’s investment in deep tech and Walmart’s 3bn cash acquisition of Jet.com as recent examples of how this strategy can reap huge rewards. “AI is not the focus; the focus is what are you doing with that to really transform your business.”
3. The autonomous vehicle boom may be overhyped. Self-driving cars are farther away from going mainstream than most people think, said Rahul Dutta, Managing Director of Evercore, as the technology needs to better account for human error on the road. “Some of the technology driving autonomous vehicles is also driving new technology that may get us involved in the battlefield,” Schlager also said.
4. Technology must always be viewed through a national security lens. “I spend a lot of time in technology dealing with the ‘Oh, it’s just.’ It’s ‘just’ a network printer. Well, it’s a network printer that might sit behind a firewall with a software package that can enable you to remotely access an IED,” Schlager said.
5. Valuations for unprofitable technology companies are increasingly based on underlying technology and product fit, according to slightly more than 41% of the audience. “From a growth perspective, the conversation is more about efficiency, productivity and what else can I be doing if not this?”, Gandhi said. “Let folks do things they are more excited about than churning excel spreadsheets.”
6. The competition for engineering talent is white hot, and another critical driver behind technology M&A overall, Dutta said, citing Microsoft’s recent purchase of development platform GitHub for $7.5bn as an example. “There’s more than two trillion in public market cap out there of companies where their traditional or core markets are oversaturated…. For these companies, the value driver is less cost synergy, but how do we continue to grow?”
7. Some corporate acquirers may view unprofitable technology companies through a tighter lens, however. “It’s tough for me to look at unprofitable technology companies,” said Ackerman. “At least in this industry, it’s more looking at the driver for that end profitability. It could be a good company that just needs more runway, or it could be structural or product related reasons and then it’s a pass.”