Eleven out of 17 VCs said M&A activity will dive in the second quarter.

As prospects for IPOs dry up, the only other option for startups looking for exits is a Merger & Acquisition (M&A) transaction. Startups are staring at uncertain funding, recessionary conditions, and falling valuations, hence more of them are looking for an out. (BUSINESS INSIDER)

The coronavirus crushed M&A too

But that’s easier said than done. The M&A market has been rocked on its heels by the virus. At least three high profile deals have been jettisoned, or are on the point of being so.

Sycamore Partners is trying to back out of its deal to buy a majority stake in Victoria’s Secret [L Brands (NYSE: LB)] after the firm closed stores, failed to pay rent in April, furloughed employees, and reduced its inventory due to the coronavirus.

Xerox (NYSE: XRX) too canceled its hostile bid for HP (NYSE: HP) because of the pandemic.

Meanwhile, SoftBank Group has put its WeWork deal in cold storage. According to the WSJ, SoftBank was using regulatory investigations as a means to wiggle out of its commitment to buy the WeWork shares.

Given the sentiment, it’s not surprising that BI’s survey showed declining enthusiasm for deal activity in the second quarter, perhaps beyond. 11 VCs out of 17 said M& will taper, but eight of those said it will “greatly slow,” while three said it will “somewhat slow.”

Potential buyers now circumspect

However, startups looking for prospective buyers will come up against a wall – the larger acquirers are already cutting costs and putting deals on the chopping block to conserve cash for the long haul.

A looming recession from the coronavirus has turned the spotlight on the cash runway – both for founders and VCs.

VCs are also said to be scaling back hiring. They are also making their investing norms much more stringent.

However, select sectors that have benefited from the new workplace and social distancing norms, such as the cloud business, will attract VC interest.

Nevertheless, startups must live with the reality that VC hunting grounds have now become a buyer’s market.

Related Story: Private Equity: Deal News on Victoria’s Secret, Expedia, and Norwegian Cruise Lines

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