Venture capital and Private Equity may be heading for a fall, so it makes all the more sense to keep a close eye on the M&A sector

In terms of high-profile IPOs, this year hasn’t exactly been what you would call eventful so far. With zero top-tier startups going public and valuations experiencing further markdowns that will presumably continue dropping in the next months, many investors are keen on seeing who will be the first to break the spell and possibly indicate an upswing.

One huge exception in this otherwise rather bearish investment environment is Adobe’s acquisition of tech unicorn Figma for no less than $ 20 billion. So in this article, I will invite You to read about the reasons for this huge price tag and why this acquisition may be the beginning of more investments in the design space. In addition, I will look through how hazardous conduct by company leaders can affect investments immediately and severely, the (lack of) strategic rationale behind the French TV broadcasting pair up TF1 and M6, and why Faraday Future Intelligent Electric is being sued by their own shareholders, and more.

In comparison to 2021, many investors are expecting to see a drop in the valuation of their VC investments in 2022. According to a survey by Private Equity Wire, 53 % of all survey participants are expecting a markdown.

There are many reasons for this. For one, a tighter IPO window in 2022 has left many startups unable to justify their high valuation. This task has proven to be very difficult, especially since the public market equivalents have crashed. Many fintech companies have prolonged going public due to the vacancy of necessary markets. Zopa CEO Jaidev Janardana addressed this issue very nicely by stating that “The markets have to be there [and they are] not there — not for fin, not for tech.” Another reason for the markdown could be the overvaluation of many companies through unjustified hype and FOMO (“fear-of-missing-out”) investments.

The decrease in valuation has not only affected startups though, delivery app Instacart has experienced a slash in valuations, much like the Swedish payment solution Klarna. This “reset” of valuations has hit the late-stage startups the hardest though. U.S. payments startup Stripe is the best example of this, experiencing a valuation drop of 64 %. High-tier, India-based hotel startup Oyo has also seen its valuation slashed by 20 % through a single investor (Softbank).

However, this decline in valuations may present itself as an opportunity for late-stage startups to latch on to more established companies. This option is particularly attractive for companies that want to exit and cannot do so now through the public channel.

Much like the slew of investments from all areas ranging from software development to delivery apps has experienced a pullback, there are also fewer people investing in the area of deep tech. Deep tech – also known as ‘hard tech’ or ‘frontier tech’ –  are companies (usually startups) that are looking to provide tech solutions based on substantial scientific or engineering challenges. While they often require lengthy research, lots of funding, and the technical risk involved is always high, the market risk is substantially lower, due to the high societal value that the product will deliver. Companies regularly connotated to deep tech include those specialized in quantum mechanics, robotics, and space-tech.

While it can be difficult to find concrete numbers for hard tech investment, one thing that can be said for sure is that “tourist investment” – meaning investors that normally venture into other areas but invested in hard tech last year – are currently leaving for areas where they feel more comfortable. Another change that may have driven away investors is an increase in interest rates, low interest rates were a factor that made hard tech attractive to investors in the past.

However, there have still been large funding rounds this year, with Finland-based IQM Quantum Computers closing a Series A worth approximately $126 million and the robotics sector, as the more established area of hard tech, still seeing $ 9 billion in startup investment.

Adobe’s takeover of Figma is the sort of a deal that we will not be seeing again anytime soon, but it is indicative of the fact that investors and acquirers are anticipating very high value in the design space.

Even before the Figma deal, design startups were – and still are – raking in billions of dollars in funding. The reason is that in this digital age, where everyone is in front of their screen, companies naturally want what is on that screen to look good. Design tech enables this (to a certain level) for companies without having to invest in expensive designers.

Design company Canva is the best example of this and – with a valuation of $ 40 billion – the most successful Australian unicorn. Other big players in the design space include Picsart, a Miami-headquartered provider of video- and photo-editing tools and templates, as well as Miro, a company that focuses on visual collaboration through an online whiteboard and has raised $400 million in funding until now.

Early-stage companies to watch include Superside, a heavily funded design company that services enterprise teams and received $ 30 million in series A funding in December 2021.

Another relevant company is LottieFiles, which enables their users to add simple animations to online documents and social media. The US-based company pulled in $37 million in Series B funding in May 2022.

London-based Gravity Sketch, a 3D design platform that has created a free app with sketching and modeling tools, raked in $29 million in a Series A funding in April 2022.

Electric vehicle startup Faraday Future Intelligent Electric has been sued by their shareholder FF Top Holding, who seek the removal of two board members, accusing them of running the company into the ground. This is a further step in the already existing attempt to restructure and revitalize the board of a company that has witnessed a 93 % slump since going public through a reverse merger with a blank check firm last year in July.

With an over 20% stake in the firm and 36% voting rights, the board has filed the lawsuit, claiming that the company is “suffering from a crisis of leadership at board level.” The two persons in the crosshairs of FF Top are executive chairperson Susan Swenson and board member Brian Krolicki, who FF Top Holding are looking to replace with Li Han and Xin (Adam).

Swenson and Krolicki are being accused of leading a faction that has fortified their influence in the company since the company’s blank-check merger, while simultaneously wasting $1 billion in cash, squandering $4.4 billion in market value, and failing to deliver any road-ready vehicles. High costs and supply-chain disruptions have delayed the production of the company’s FF 91 to the fourth quarter of 2022.

The troubles for Faraday Future don’t stop there though. Recently, auditor PriceWaterHouseCoopers recently resigned, stating ineffective internal control mechanisms at Faraday Future as the reason for the resignation.

In the United States, venture capital advisers are now being reminded that they are not outside of the scope of the Securities and Exchange Commission – the SEC is an independent federal government regulatory agency responsible for protecting investors, as well as maintaining fair and orderly functioning of the securities markets.

Since 2011 – so since the implementation of Dodd-Frank Act rules  – we saw the main focus of the SEC’s regulations address newly registered RIAs (registered investment advisers), with comparatively little focus falling on the ERAs (exempt reporting advisers).

Under its new leadership, the SEC is looking to change this and has already started undertaking actions. Five recently settled enforcement actions against venture capital advisers in September alone indicate that the SEC is taking a new course. It is also a clear sign to VC advisers that they are very much in the SEC’s scope of scrutiny.

While the SEC’s focus on private fund advisers has become quite evident now, it is now also becoming clear that an ERA focus will take place. The SEC’s proposal earlier this year regarding new rules that would also impact private fund advisers (including ERAs) is only one indicator for that.

On September 7, Adobe announced that they will be acquiring Figma for $ 20 billion in cash and stock. This move has turned a lot of heads, especially since Figma’s valuation is “only” at $ 10 billion. As a result, Adobe’s stocks have crashed by 17 %, the steepest drop the company has experienced in 12 years.

So why is Adobe paying 2021 prices in 2022? Especially with no other buyer driving up the price, the price tag of $ 20 billion seems very drastic. One reason for this is evidently the huge success that Figma’s cloud-based designed software has been celebrating over the past few years. Figma is clearly cheaper, very intuitive in its UX, has a modern layout and collaborative functions. Moreover, it also receives excellent feedback from huge enterprises to small startups, attesting to the software’s flexibility. All this did not escape Adobe, especially since Figma is in direct competition with Adobe XD. The company is now most likely looking to remove that thorn in their side with this more than costly procedure.

What does this acquisition mean for the creative cloud landscape? For one, it will allow Adobe to add the popular design tools created by Figma into its portfolio. But – like every other acquisition – it also means that Adobe will have one competitor less and therefore nobody to challenge them. With Figma off the market, the list of companies capable of challenging Adobe’s empire just got meaningfully smaller, the most relevant being GIMP, PIXLR, Paint.NET.

The McKesson corporation – a Fortune 500 company and also the world’s largest healthcare company by revenue and the fifth largest in the United States – announced that they will be buying pharma tech firm Rx Savings Solutions for $ 875 million.

Rx Savings is known as a solution that helps employers and health insurers find cheaper prescription medicines. Rx Savings also offers ongoing medication reminders, supporting prescription adherence.

McKesson’s CEO stated that “Rx Savings Solutions’ offerings for employers and patients will strengthen McKesson’s ability to help solve the most common medication challenges related to access, affordability and adherence.”

Rx Savings will also see a high benefit in this merger. Michael Rea, founder of Rx Savings commented that “This combination brings together two highly complementary organizations with closely aligned goals and values. By joining McKesson, we will be able to offer an exceptionally broad set of services to our clients and strengthen our leadership in prescription price transparency.” The tie-up with McKesson is seen as a “critical part of Rx Savings’ growth journey.”

Unlike some mergers, which are conducted simply for the reason of buying up a competitor that might become dangerous one day, McKesson expects to use Rx’s combined medication access, affordability, and adherence services as a foundation to build new outcomes management programs for biopharma and payers, differentiated by their reach and efficacy at three touchpoints: provider office, pharmacy counter, and direct patient tools.

In a merger that would have given the parties 75 % control of the French advertising market, concessions were too severe for the parties – Bouygues, RTL Group, Groupe TF1 and Groupe M6 – to continue with the merger of TF1 and M6.

The announcement of the merger came through last year in May and the parties announced that one of the main reasons for the tie-up was to further be able to compete against international platforms.

Abandoning the merger does not come easy for the parties that went above and beyond to provide remedies that would ensure approval. For one, the parties agreed to keep their advertising businesses separate for three (potentially five at a later stage) years after their merger. Moreover, the parties were also reportedly ready to extend the separation of the businesses to cover digital channels such as TMC, TF1 Séries Films and Gulli as well as the flagship TF1 and M6 national channels.

However, this was not enough. “Following the debates with the Authority and despite the additional remedies proposed, it appears that only structural remedies involving at the very least the divestment of the TF1 TV channel or of the M6 TV channel would be sufficient to approve the proposed merger. The parties have therefore concluded that the proposed merger no longer has any strategic rationale,” the parties stated.

To summarize, even though the VC and Private Equity environment may be handicapped momentarily due to the general international circumstances, it makes all the more sense to keep a close eye on the M&A sector. It is exactly the lack of IPO options that are presenting alternatives for companies looking to make changes.

The McKesson / Rx Savings merger, as well as the Adobe / Figma tie-up, show us that acquisitions are still taking place and for a multitude of reasons. Whether the goal is an advancement of product accessibility or investment to help solidify the company’s relevance in the future, investors are well advised to keep a close eye on M&A movements that are happening contemporarily.