Tech M&A Market Stalls: Impact of Tariff Turmoil

M&A Activity in a Volatile Market

A robust upward trend in the tech market isn't a prerequisite for a thriving mergers and acquisitions (M&A) landscape. Transactions can still occur even during periods of market decline. However, the question of whether M&A can genuinely flourish amidst significant uncertainty is more complex.

Venture Capital and the Wait for Exits

The venture capital market experienced a downturn in 2022, characterized by a substantial decrease in both fundraising activities and successful exits. Consequently, venture investors have been anticipating opportunities for exits, encompassing both M&A deals and initial public offerings (IPOs). While the preceding years didn't yield the desired results, optimism began to build as 2025 approached.

Valuations for late-stage startups demonstrated initial signs of recovery. Furthermore, a series of impactful deals suggested that a potential resurgence was underway.

Political Influences on M&A

The administration led by Donald Trump signaled a more favorable stance towards M&A compared to the previous administration under Joe Biden. Biden’s administration had previously intervened to block several prominent deals citing antitrust concerns.

Early 2025: A Surge in Deal Flow

The beginning of 2025 witnessed an increase in deal activity. Data from PitchBook indicated 205 U.S. startup acquisitions in the first quarter alone, with many representing significant transactions.

Notable acquisitions included CoreWeave’s agreement to acquire Weights & Biases for $1.7 billion in March. ServiceNow subsequently announced its intention to purchase Moveworks for $2.9 billion. Later in the month, Google revealed its plan to acquire the cybersecurity firm Wiz for $32 billion.

Additional first-quarter acquisitions involved the sale of proptech company Divvy Homes to Brookfield for $1 billion and the sale of Next Insurance to Munich Re for $2.6 billion.

April's Shift: Tariffs and Uncertainty

However, the momentum began to shift in April.

April 2nd, referred to as “Liberation Day,” saw Donald Trump announce extensive tariffs against a vast majority of major trading partners. This announcement led to a sharp decline in tech company stock prices, casting doubt on the progress observed in the first quarter.

A week later, Trump announced a 90-day suspension of these tariffs, leaving the market in a state of uncertainty.

Current Outlook

“As many recall, there was considerable anticipation heading into 2025, with expectations of a significant upturn,” stated Stellar Tucker, a managing director at Truist Securities, in an interview with TechCrunch. “Unfortunately, these expectations haven’t fully materialized. The current outlook for 2025 is rather subdued, which is disappointing considering the widespread belief that it would be a more favorable year than the recent challenging ones.”

Fluctuating Market Values

Several factors contribute to a slowdown in mergers and acquisitions (M&A) when public markets experience volatility or uncertainty.

Notably, major public technology companies, frequently involved in acquisitions, are directly impacted by trade policy uncertainties. Declines in their stock prices, coupled with potential tariff effects on products or supply networks, create hesitation.

Kyle Stanford, Director of U.S. Venture Capital Research at PitchBook, explained to TechCrunch that these large public entities face challenges with diminished stock valuations. He stated they may be reluctant to deploy capital in an unstable market, fearing negative reactions from investors. Stanford further suggested that stock repurchases are likely being considered as an alternative to acquiring other companies.

Determining a fair price presents another obstacle. Valuation ambiguity has been present for some time, with many later-stage startups seeing their peak 2021 valuations challenged. However, establishing a definitive current value remains difficult.

Ronan Kennedy, leading the capital advisory team at B Capital, highlighted the extensive negotiation processes and resulting uncertainty. He noted that companies are hesitant to finalize deals when a short delay could significantly alter the terms or overall valuation.

A Shift in the Deal Landscape

While the pace has slowed, some mergers and acquisitions will still be completed.

Thomas Earnest, a partner at Mintz specializing in tech fundraising and M&A, conveyed to TechCrunch that companies which tentatively explored sale options earlier in the year are likely pausing those efforts. This represents a significant shift from his earlier predictions of increased M&A activity just weeks prior.

Earnest highlighted the rapidly changing global situation, noting the stark contrast between January, March, and even just three weeks ago. He drew a parallel to the housing market, suggesting that potential buyers will hesitate if they anticipate a substantial decrease in asset value, a principle that could heavily influence the M&A landscape.

However, not all M&A is driven by opportunistic choices. Startups facing difficulties securing subsequent funding rounds will likely still seek acquisitions, potentially accepting lower valuations.

These companies may have initially hoped for a recovery in the venture capital market, but if that doesn't materialize, they will need to consider down rounds or discounted acquisitions. This situation is expected to generate deal volume.

Furthermore, well-funded, private AI companies are poised to acquire smaller entities. A recent example is the rumored acquisition of AI coding startup Windsurf by OpenAI for $3 billion, following OpenAI’s $40 billion funding round in late March.

PitchBook’s Stanford expressed concern that the early April events may have already curtailed M&A activity for the remainder of the year. He also noted that the potential resumption of tariffs in July, or the establishment of new trade agreements, could further complicate the situation.

A period of stability is not anticipated until summer, which is traditionally a quiet time for such transactions. The fourth quarter and year-end holidays typically see a further slowdown.

This leaves a limited timeframe for substantial M&A deals to be finalized.

“The likelihood of a stable 2025 appears diminished given the recent volatility,” Stanford stated. “The constant flux of news, including exceptions and inconsistencies, introduces considerable uncertainty into the market.”

Factors Influencing M&A Activity

Market Uncertainty

The current economic climate is characterized by significant uncertainty, impacting buyer and seller confidence.

Funding Challenges

Startups struggling to secure further funding may be compelled to explore acquisition options.

Strategic Acquisitions

Well-capitalized companies, particularly in the AI sector, are likely to pursue strategic acquisitions of smaller firms.

External Factors

Trade policies and global economic events play a crucial role in shaping the M&A landscape.

Outlook for the Remainder of the Year

The remainder of 2024 presents a challenging environment for M&A activity. A stable market is not expected until the summer months, and the traditional year-end slowdown will likely exacerbate the situation.

Despite these challenges, some deals will continue to occur, driven by necessity or strategic considerations. The level of deal volume will likely be lower than initially anticipated.