US still runs the show but Europe is catching up. 

  • Mind the Bridge, together with Crunchbase and the support of global law firm Orrick, Herrington & Sutcliffe LLP is launching this year’s edition of our annual M&A activity overview, “Startup M&A Report 2017” on September 20th, at the European Innovation Day conference in Mountain View, the central event of the SEC2SV Program.
  • Mind the Bridge and Crunchbase have tracked over 15,500 startup exits worldwide since 2010 for a total value of about 1.3 trillion dollars. The US and Europe still control the majority of deals and capital (83%), with Silicon Valley running the show: the top 15 world acquirers are all US companies with 9 from Silicon Valley. In Europe, The UK is the “exit capital”, followed, at a distance, by Germany and France. We have also noticed a trend showing that 48% of the startup acquisitions have been completed by startups or former startups.
  • 2017 has featured the highest YoY increase in deal volume (42%) since 2011. Europe is growing faster compared to the US, even if the gap remains huge, with US corporates acquiring over 3 times more startups than European counterparts.
  • The US shows a good equilibrium between number of exits and number of acquisitions, while Europe still runs a negative M&A balance (more startups sold than acquired). Countries like South Korea, China and Japan have been confirmed to be “net acquirers” of startups.
  • This report also confirms the “Power Law” of venture capital: 71% of the exited startups don’t return the capital invested, while 13% return more than a 3x multiple (3% with wild multiples). 

 

The worldwide startup M&A market is growing fast, having registered the highest YoY increase in deal volume (+42%) since 2011, with the US and Europe leading the majority of capital and deals. This is the main message emerging from the latest “Startup M&As 2017 Report” launched today by Mind the Bridge and Crunchbase with the support of global law firm Orrick, Herrington & Sutcliffe LLP that will be presented and discussed in-depth on September 20th, during the European Innovation Day conference in Mountain View, the flagship event of SEC2SV week program.

“As expected, the Report demonstrated the dominance of US companies in acquiring startups.” commented Alberto Onetti, Chairman of Mind the Bridge. “US companies have acquired approximately over 3 times more startups than European counterparts. Europe is catching up but the gap remains huge and is not going to be closed in the near future.”

“In the new Report we tracked over 15,500 startup exits worldwide since 2010 for a total value of about 1.3 trillion dollars, with 4,217 having occurred from July 2016 to June 2017 for a total deal value of $367B – commented Genè Teare, Head of Contents at Crunchbase – A trend that continues a strong 5 years of increase following the recovery from the 2007/08 financial crash.”

The US and Europe still control the majority of deals and capital (83%), with Silicon Valley running the show: 52% of exit volume and 60% of exit value in the last 12 months involved US startups. European exits accounted for 27% of exits and 30% of capital while APAC startups contributed 12% and 8%, respectively. However, in this last 12 months, US recorded a +30% YoY increase in volume and a 10% YoY decrease in value, while Europe showed 61% and 51%, respectively.

“The Mind the Bridge research shows that Europe has grown even faster in the same period, with the size of the annual European acquisition total going from $2.5B in 2012 to $112.3B in 2017 – added Olivier Edwards, Co-Chairman Orrick’s Silicon Valley Europe Desk – This is an important sign of the value, speed of development and strength of European startups, even if the gap with US is still huge”. “This is the best moment for US investors and acquirers to have a look at the Old Continent and bet on the right horses. – Added Matteo Daste, Co-Chairman Orrick’s Silicon Valley Europe Desk  The launch of Orrick’s SF Bay Area Europe Desk is meant to help bridge this gap.”

There is in fact a clear preference between these ecosystems for each other: 93% of about 13,000 transactions involving US and European startups are made exclusively by European and US companies themselves, while the remaining 7% involved a buyer from a country from the rest of the world (Canada, India, Japan, Australia, China and Israel). US and European companies acquired an additional 1,195 startups outside the US and Europe spending $37 billion dollars for transactions with disclosed amounts.

total of 9,176 deals have been completed by US companies on the “buy” side representing 77% of all the transatlantic transactions. On the other side a total of 2,789 acquisitions were performed by European companies. The median deal size for US companies being acquired by EU firms is $100 million, 2.2 times the median amount for European companies being acquired by US firms ($46M), having invested $264 billion dollars.

“This research from Mind the Bridge shows U.S. and European startups engaging intensively in Mergers and Acquisitions activity and demonstrating a clear preference for each other. Initiatives such as Startup Europe Comes to Silicon Valley provide a platform for information and business opportunities to flow freely across the Atlantic, strengthening ties and building bridges between the U.S. and EU’s tech sectors.” commented Andrus Ansip, European Commission Vice-President for the Digital Single Market.

In addition, the numbers show that both European and US companies prefer to acquire companies in their own region (both sides are domestic companies), respectively in the 87% and 75% of the deals. However, on the capital side, American companies poured $600B (75%) in domestic acquisitions and $200B in acquisitions of European startups (25%) while European firms invested much more in US startups ($153B, 58%) than in domestic ones ($111B, 42%). It means that US startups are more expensive than European counterparts, accounting for about 25% of acquisitions by EU companies, but eating up 58% of the total capital invested: the median price paid for EU companies acquiring other EU firms was $29M, while the median price of EU companies acquiring US firms was $122M in the same time frame. On the other side, US companies acquiring US firms paid a median price of $105M, and on average paid approximately $85M for European companies.

The “Exit/Acquisition Ratio”
The Report analyzed also the “Exit/Acquisition Ratio”* of the countries. Silicon Valley shows an almost perfect equilibrium (ratio=1) with a slight negative M&A balance in terms of capital flow at 1.1 (meaning only a slight gap with capital invested in M&A’s being marginally lower than capital received for acquisitions). Europe is still characterized by a negative M&A balance of a traditional ecosystem that hasn’t fully adjusted. The 1.1 ratio and 1.3 for capital flow indicates also a situation where the overall number of startups that have been sold is larger than the ones that have been acquired by regional companies. This slightly negative ratio paired with the slightly positive US number suggests that the deficit and subsequent drain of startups from Europe is working to the benefit of US companies who are acquiring them. APAC finally comes in with 0.9 for volume of startups and 0.5 for capital. In Europe, only four countries are below the parity (net buyers): France, Sweden, Switzerland, and Ireland (for whom numbers are distorted by Irish domiciled corporations). France, Norway, Sweden (around 0.9) and Finland (1.05) sit close or slightly above the parity. The Southern countries show higher values (net sellers), ranging from 1.5/1.3 (Italy, Spain and Benelux) up to 2.8 (Portugal) and 5 (Greece). 

MA Report fig.1

US and European Exits and Acquisitions: Top 15 Countries
Not surprisingly, since 2010 the top 15 world acquirers are all US companies with 9 from Silicon Valley – Facebook, Google and Apple having bought more companies through acquisitions in the time period than the top 20 European companies combined. If we restrict the analysis to the last 12 months, Google maintains its leadership position. The most significant change is that the second and third top startup acquirers for the past year are consulting companies (Accenture and Deloitte). US not surprisingly leads the Top 15 Countries Rank of Acquirers, UK follows in second, though the gap with the US remains huge, with 1,234 since 2010. It has exited more startups than Germany, France, Benelux, Spain and Italy combined in that period. The situation is similar for acquisition volume by country. The UK is at the top with 1,031 transactions, followed by France and Germany with 354 and 336 respectively. Germany is more active in exits and less in acquisitions, while it is the opposite for France. London continues to be the “exit capital” of Europe: the number of startups that exited in London (567) is almost the same as for the other top six cities in Europe combined, Paris recorded 165 exits and can be considered the second hotspot, followed by Berlin (124).

(Former) startups acquiring startups
Out of the over 15,500 worldwide startup acquisitions, the 48% (7,579) have been completed by startups, i.e. companies founded in the New Millennium. 16% (2,513) of the M&A deals have been performed by startups established after 2010, suggesting that recently founded companies seem to have a more acquisitive approach than those more traditionally established companies.
For the top 30 acquirers among “startups” 19 (and all the top ten) are from US (plus one – Hootsuite – from Canada), and 14 come from Silicon Valley (led by Facebook, Twitter and Salesforce). Europe has 4 in the top 30 with Delivery Hero the highest placed at 11th, followed by Just Eat, Food Panda and Spotify.

Finally the Report analysis confirms the “VC Power Law” principles: 71% of the exited startups don’t return the capital invested to the Venture Capital, but the 13% return more than a 3x multiple. 1 out of 10 properly rewards the invested capital (5-10x returns).

European vs US startup exits

  • European startups make an exit a bit later (on average they are 9 years old at the time of the acquisition, compared to 8 from the US); they are smaller at the time of the exit, both in terms of headcount and capital raised – $113M raised versus $145M of the American peers.
  • European startups sell for less: average (median) selling ticket is $46M vs $100M for US startups.
  • European exited startups return on average more capital than US startups (or more properly lose less capital). They show an average (median) ratio between acquisition price and capital raised of 0.6 v ersus 0.35 of US exited startups.

MA Report fig.2

*The “Exit/Acquisition Ratio” is an index created and calculated by Mind the Bridge to represent the ratio between the number of exits in a certain area and the number of acquisitions performed in the same area. Values above 1 show “negative M&A balance”, typical of emerging ecosystems able to generate a lot of startups without a critical mass of large corporates active in open innovation and acquisitions. Values below 1 show a “Positive M&A balance”, characteristic of ecosystems with a strong corporate presence but a not yet properly developed startup community.