The slow M&A market could be due to high valuations of AI startups, with potential buyers waiting for the market to cool. Investors have voiced concerns about the difficulty of achieving a five-to-tenfold return at current valuations. There are also concerns that big tech players like Google and Microsoft could dominate certain areas of AI, leaving startups and their investors struggling to find an exit in a market where they can't compete. Despite this, the first quarter of 2024 has seen 43 deals, indicating a potential uptick in activity.
Key takeaways:
- Investors are heavily funding AI startups, with venture funding in the space exceeding $50 billion last year. However, M&A remains the most common exit path for these startups.
- Despite the hype around AI, M&A dealmaking in the sector declined by 31% from 2022, with only 190 deals completed compared to 276.
- Dealmaking in AI seems to be picking up in the first quarter of this year, with 43 deals already completed and a few weeks still left in the quarter.
- Investors have expressed concerns about the high valuations of AI startups and the difficulty of achieving a five-to-tenfold return at these valuations. This could explain the slow M&A market in the sector.