Venture capitalists are desperate for exits right now. But the bad news? Recent scrutiny from agencies like the Federal Trade Commission could make tech deals take even longer to close moving forward.
“I think the assumption is that the big buyers—the Big Tech buyers—are going to have painfully long processes,” Chelsea Stoner, general partner at Battery Ventures, said at Fortune Brainstorm Tech in Deer Valley, Utah, this week. “I think that's just going to even increase from there.”
We’re seeing this play out in a big way right now with Microsoft and Activision Blizzard: On Tuesday, a U.S. judge denied the FTC’s request to temporarily block Microsoft’s nearly $69 billion acquisition of Activision Blizzard, the maker of games like Call of Duty, which is slated to close by July 18. The FTC is appealing the decision, though its request to pause the deal during the appeal was denied late Thursday. Importantly, Microsoft is still facing the FTC’s antitrust lawsuit, the trial for which is set to begin in August (the blockbuster deal was first announced early last year). Meanwhile on Friday the U.K. competition regulator extended the deadline for its review of the deal to Aug. 29.
That regulatory tension is something VCs like Battery Ventures’s Stoner have experienced first hand in the past: She said they previously sold customer service startup Kustomer to Facebook, and it took roughly a year to get the deal done, she estimated, even though she said it was a small company.
The FTC itself is under scrutiny for its sweeping aggression toward Big Tech, as chair Lina Khan faced questions over the agency’s recent moves in a House Judiciary Committee hearing on Thursday. But even if the FTC ultimately fails in certain cases, it’s still a challenging environment for M&A.
That’s a big problem for venture investors, who are eager to materialize paper gains for some of their companies, but whose options for exits are few and far between. Exits are down through the first half of the year, and PitchBook analysts predict the “full-year figure will likely come in as the lowest of the decade,” they wrote in a recent report. Meanwhile the IPO market has remained largely stagnant.
“I don't know if that changes the dynamic between how you think about a strategic sale versus IPO, but it's definitely on our minds,” Stoner said of VCs. It’s also certainly on the minds of VC investors, too: Limited partners have grown increasingly stingy with their funds as they wait for liquidity.
VCs will no doubt be watching what happens with Microsoft and Activision Blizzard (and Adobe and Figma’s would-be tie-up, for that matter). And if Stoner is right, they should buckle up for a more arduous M&A process for tech companies in the future.
IPO buzz: Although the IPO market remains chilly, there are signs it’s heating up. On Wednesday, the Financial Times reported that Nvidia is in talks to become the anchor investor for chip designer Arm’s upcoming New York IPO, which could come as soon as September. (Remember, Nvidia tried to acquire Arm from SoftBank, but abandoned the deal amid regulatory scrutiny.) The Information also reported on Wednesday that VC-backed Liquid Death—the water brand known for its bold can packaging—hired Goldman Sachs to lead a possible IPO that could come in early 2024.
Have a great weekend,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
Update, July 14, 2023: The online version of this newsletter has been updated to add a reference to the sale of Kustomer to Meta in 2022.
