I attended a board meeting last week where the Board was debating whether it is a good time to seek a trade buyer for the company. The recent movement in the stock market is at the core of their concern that the tech M&A market would not be receptive and valuations would be too low. My position is that the stock markets are not the best indicators of the health of the tech M&A market. We should look to other indices for guidance when deciding M&A timing. Thats because the technology M&A market performance is somewhat decoupled from the public markets. They respond to different drivers.
The public markets confidence in the pace of the global economic recovery has been pretty low and the markets are in a volatile state right now. Typically they react emotionally to news. Single issues are causing very large swings in the market on a daily basis. Last week, a constant stream of major news stories drove major fluctuations. On Monday, the markets closed way down over displeasure with Washington on the debt and deficit legislation; Tuesday, it was way up on interest rate news from the Fed; Wednesday, down again on European debt concerns; Thursday, way up on the US job report; and Friday, the momentum continued up, mostly because there was no bad economic news to react to. YTD (as of this writing) the Dow is down 1.8%, the S&P is down 6.3%, the NASDAQ is down almost 5.5%, and the FTSE 100 is down almost 10%.
By contrast, the M&A market is more robust than it has been in 3 years. The number of tech M&A deals is high and the valuations are strong. The amount spent on tech M&A YTD through June exceeds all of 2009, and through July it nearly matches all of 2010. So why should the highly volatile public markets drive your M&A decision? Volatility will be with us for a while, so get used to it. Look more closely at the tech M&A market for your timing guidance.