Startup M&A Activity Sees Minor Dip in Q3: What It Means for the Future

Even as venture capitalists seek liquidity to deliver returns to their limited partners, M&A dealmaking involving startups slightly decreased in Q3. According to Crunchbase data, there were 479 M&A deals globally for VC-backed startups, marking a small decline from 500 deals in Q2. This also ends a two-quarter streak of increasing M&A activities.

Interestingly, this number reflects a year-over-year increase compared to Q3 of last year, which had 430 completed deals. Despite the slight dip from Q2, the current year is on track to surpass last year's pace, when M&A activities had significantly slowed.

However, the Q3 figures show a 17% decline from the same quarter in 2022, a time when the M&A market was robust.

Big Deals

Notable large deals in Q3 included Mastercard acquiring Recorded Future for $2.65 billion and Salesforce purchasing Own Company for approximately $1.9 billion. While the overall M&A numbers do not indicate a definitive rebound, they may alleviate some concerns from VCs about the slow M&A pace in an environment perceived as over-regulated.

AI’s Influence

AI continues to play a significant role in the M&A landscape. The number of deals involving AI-related startups mirrored overall M&A trends, with 70 deals announced last quarter, down slightly from 75 in Q2 but up 46% compared to last year. The share of AI-related deals has also increased, moving from 11% a year ago to 15% in the last two quarters.

Looking Ahead

The outlook for Q4 does not suggest a significant rebound in startup M&A activity. Factors such as the U.S. elections may create uncertainty in the market, and the holiday season typically slows activity. However, VC-backed startups are expected to experience a better M&A year compared to last year, even if it falls short of initial expectations.