Stage Successful Exit Strategies Amid a Changing Market in the Technology Industry
A version of this article was originally published in August 2024 in the Fenwick Insights.
After a touch-and-go environment in the years leading into 2024, exits—such as initial public offerings (IPOs) and mergers—are beginning to show signs of life. After discussions between professionals at Moss Adams, MUFG, and Fenwick during Seattle Tech Week, below are trend observations along with potential exit strategies for up-and-coming companies so that they may also reap the rewards of these trends.
Exit Environment Trends
The exit environment is beginning to look better, despite some lingering uncertainty. Global equity markets performed well for the first half (H1) of 2024, and the United States remains a great place to start a business and have a successful exit—with strong equity market performance in the first half of the year and gross domestic product (GDP) growth that has handily outpaced other Group of 10 (G10) countries.
That’s against a backdrop of several low-probability, high-impact events: COVID-19 pandemic, wars in Europe and the Middle East, banking stress, inflation, and policy tightening. And while the markets are in a preelection lull, they historically rally after the political dust has settled in November.
Trends show the early innings of an M&A recovery, with $1.6 trillion in H1. Megadeals—particularly in the energy sector—pushed that value higher than the same period last year, despite H1 2024 seeing 13% fewer transactions overall.
Looking Forward to 2025
The IPO market is starting to thaw, but there’s still near-term uncertainty. Market sentiment is generally more optimistic about 2025, particularly with election tailwinds and a potential rate cut. If you’re targeting a 2025 IPO, now’s the time to prepare.
Tailored Exit Strategies
When strategizing an exit, consider what your target is looking for and make sure you can tell the story that’s relevant to them. Potential acquirers are typically interested in growth, but for most IPOs, you need to show consistent growth paired with a clear line of sight to near-term profitability.
Preparing for Change
Companies can undertake a wealth of practical housekeeping measures well before an IPO to reduce potential problems, starting with strong counsel and a knowledgeable banker who can advise on strategy and connect you with potential investors. Evaluate internal readiness by assessing your financials, governance, management, and reporting systems.
Companies need at least two years of audited financials in the IPO prospectus, so starting early on a public company accounting oversight board (PCAOB) audit is important. Think about your board—is it public-company-ready, with diversity of backgrounds and skill sets?
Special Purpose Acquisition Companies (SPACs)
The appetite for going public through a so-called special purpose acquisition company (SPAC) has slowed since its zenith, in part due to new SEC rules issued in January 2024. Meanwhile, reverse mergers remain a similar-but-niche option, though most companies will go public via an IPO, or less commonly, a direct listing. For many technology companies, the traditional IPO will remain the preferable choice.
We’re Here to Help
If you have questions exit strategies within the technology sector, please contact your Moss Adams professional.