In the name of growing rapidly, it appears that some of the most valuable private technology companies are turning to mergers and acquisitions (M&A) as a way to accelerate business growth. So-called “unicorns”: Private technology companies that achieve multi-billion dollar valuations at some point before (or as a direct result of going public or going through mergers and acquisitions) are eager to make their first acquisitions, which which suggests increasing pressure on companies to grow even faster.
Analysis of Crunchbase data indicates that, on average, recently founded unicorn companies are more likely to conduct their first M&A transactions prior to their founding than their previous counterparts. In other words, younger unicorns buy other companies earlier. Here are the data.
Bridging the gap between the foundation and the first M&A
Using M&A data for companies on Crunchbase’s unicorn list, we found out when unicorn companies made their first M&A transactions on average. (We detail the methodology a bit more in a note at the end.) Companies founded in more recent years were the quickest to hit the M&A trail.
Eleven unicorn companies founded in 2007 took an average of approximately 8.33 years before making their first acquisitions. At the time of writing, 29 unicorns founded in 2012 made their first initial purchases, averaging just 4.1 years before doing so.
Note that there is a bit of sampling bias here. To some extent, unicorn companies founded in more recent years are expected to have a lower average age for first acquisition, because there are many unicorn companies that have yet to make their first M&A deals.
Most of all unicorn M&A transactions (not just early ones) occur within the first seven years after founding.
We should take the dramatic reduction of the last few years in the average time to first acquisition with a stronger grain of salt (again, there are a lot of unicorns that have not yet gone to buy new companies). Even with that caveat in place, the averages have tended to a steady decline between 2007 and 2012, after remaining stable (across a set of samples, of course, small) since the dawn of the unicorn age.
This suggests that younger unicorns are increasingly using M&A transactions as a way to accelerate their path to mass market power.
It is a great move for one company to buy another. There are all the financial details that must be negotiated, the legal and regulatory hurdles that must be removed, and the inevitable friction of integrating equipment and technology from one entity to another. And that’s when the process is friendly and goes well. The amount of time and resources a company commits to carrying out an M&A strategy is not trivial, so it is understandable why a company would delay this process or avoid it altogether. The fact that high-growth tech companies are pursuing such an intense time and energy strategy early in the business lifecycle points to the benefits that M&A can bring to startups looking to scale quickly. .
We found this by looking at the set of acquisitions made by the companies on Crunchbase’s unicorn list, which we use as a proxy for the “private high-performance tech companies” as a collective whole. We found the elapsed time between the unicorns’ listed founding dates (which, note, have different levels of precision) and the date of their first acquisitions, regardless of whether the acquirer had achieved unicorn status. We then plot the resulting data in a couple of ways.
More information on the Crunchbase News methodology can be found on a dedicated page on this site.