Looking ahead after 2020’s epic M&A spree

When we examine any year in enterprise M&A, it’s tempting to highlight the biggest, gaudiest deals — and there were plenty of those in 2020. I’ve written about 34 acquisitions so far this year. Of those, 15 were worth $1 billion or more, 12 were small enough to not require that the companies disclose the price and the remainder fell somewhere in between.

Four deals involving chip companies coming together totaled over $100 billion on their own. While nobody does eye-popping M&A quite like the chip industry, other sectors also offered their own eyebrow-raising deals, led by Salesforce buying Slack earlier this month for $27.7 billion.

We are likely to see more industries consolidate the way chips did in 2020, albeit probably not quite as dramatically or expensively.

Yet in spite of the drama of these larger numbers, the most interesting targets to me were the pandemic-driven smaller deals that started popping up in May. Those small acquisitions are the ones that are so insignificant that the company doesn’t have to share the purchase price publicly. They usually involve early-stage companies being absorbed by cash-rich concerns looking for some combination of missing technology or engineering talent in a particular area like security or artificial intelligence.

It was certainly an active year in M&A, and we still might not have seen the last of it. Let’s have a look at why those minor deals were so interesting and how they compared with larger ones, while looking ahead to what 2021 M&A might look like.

Early-stage blues

It’s always hard to know exactly why an early-stage startup would give up its independence by selling to a larger entity, but we can certainly speculate on some of the reasons why this year’s rapid-fire dealing started in May. While we can never know for certain why these companies decided to exit via acquisition, we know that in April, the pandemic hit full force in the United States and the economy began to shut down.

Some startups were particularly vulnerable, especially companies low on cash in the April timeframe. Obviously companies fail when they run out of funding, and we started seeing early-stage startups being scooped up the following month.

Zoom acquires Keybase to get end-to-end encryption expertise

We don’t know for sure of course if there is a direct correlation between April’s economic woes and the flurry of deals that started in May, but we can reasonably speculate that there was. For some percentage of them, I’m guessing it was a fire sale or at least a deal made under less than ideal terms. For others, maybe they simply didn’t have the wherewithal to keep going under such adverse economic conditions or the partnerships were just too good to pass up.

It’s worth noting that I didn’t cover any deals in April. But, beginning on May 7, Zoom bought Keybase for its encryption expertise; five days later Atlassian bought Halp for Slack integration; and the day after that VMware bought cloud native security startup Octarine — and we were off and running. Granted the big companies benefited from making these acquisitions, but the timing stood out.