Startup News: Fanatics among unicorns expanding through M&A, while IPOs stay cold

At some point, market conditions might be right for Fanatics, the fast-growing online sporting-goods merchandiser, to live up to earlier expectations and launch a successful IPO. But in the meantime, the privately-held company has adopted a strategy that is winning over investors: the company has plans to expand through acquisitions.

Last January, Fanatics, based in Jacksonville, Fla., purchased the legendary Topps trading card business for a reported $500 million. And earlier this month, The Wall Street Journal reported that Fanatics had raised an additional $700 million in funds from a group of backers including private-equity firm Clearlake Capital Group and investment firm LionTree. Much of the funding will reportedly be used to finance additional takeovers.

Fanatics, which has a valuation of $31 billion, is emblematic of a shift in focus among private companies in 2022. A falling stock market for much of the past year has cooled the appetite for IPOs; as a result, many private companies are more inclined to either acquire smaller firms or be bought out themselves.

With IPOs all but off the table, many private firms have warmed to M&A as a way for acquirers to expand their business while achieving efficiencies and for takeover candidates to provide an exit strategy for founders and venture capitalists.

In November, Redwood, Calif.-based Evernote, which markets a personal productivity app and has a valuation of roughly $1.5 billion, agreed to be purchased by Bending Spoons, a Milan, Italy-based app developer. And two months earlier, Figma, a San Francisco-based software developer that markets a design tool used by corporate teams, announced it was being taken over by software-developer giant Abode Systems. The $20 billion purchase is Adobe’s largest acquisition to date.

Earlier this year, San Diego-based ClickUp, which markets itself as an all-in-one productivity platform and has a valuation of $4 billion, acquired Slapdash, a unified interface for cloud applications.

A drop in the shares of Twitter earlier this year no doubt made the company more appealing to Elon Musk. In April, the Tesla founder announced his intention to take the social-network company private for $44 billion. Though Musk did back away from the deal at one point, a legal threat from the company to force the acquisition did lead to the company’s eventual sale to Musk in October.

According to investment bankers at Goldman Sachs interviewed by The Information, the pace of acquisitions among tech-forward private companies may pick up in 2023, particularly if the stock market remains under pressure.

About the Author

John Kimelman is a veteran journalist who has worked at Barron’s and CNBC covering such topics as investing and commercial banking. Mr. Kimelman has received compensation from Forge Global, Inc. for authoring this article.

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