Goldman Sachs Speaking Very Loudly…Are Founders, Venture Capitalists and LP's Listening?
Good morning…
The markets mood is very connected to fundamentals.
It makes sense that as deglobalization policies/actioons take effect that deal volume is slowing down.
Most CEO’s and boards like doing deals when markets are going up. Acquirers feel relatively richer and when prices come down they tend to sit on their hands.
In markets like today where growth stocks fall 30-50 percent in a month ( $PLTR ( ▼ 2.87% ) , $HIMS ( ▼ 7.84% ) $RDDT ( ▼ 12.62% ) , $HOOD ( ▼ 5.14% ) , $DECK ( ▼ 1.72% ) ), the CEO’s back off and the ones that do deals will drastically lower offers (as they should).
Here is Goldman Sachs today:
Goldman Sachs Sachs out with a new note on M&A activity. The firm reducing its forecast from 25% growth in deals to 7% amid policy uncertainty here. So basically this would be US M&A volume growth. They’re saying it’s now only going to be 7% this year from last year. And they say this is a function of US economic growth, CEO confidence, financial conditions, they talk about tariffs obviously having an effect, and they say that this year announced M&A activity is up 15% year-over-year. Um and Barb, what stood out to me from this note is not that M&A activity, IPO activity has collapsed. It’s just that it’s sort of trending near average and there had been big hopes that there would be a resurgence this year, that this administration would foster an environment that would be healthier to capital markets. It doesn’t seem to be happening.
Just today, $GOOG ( ▼ 3.08% ) is trying to buy Israeli security company WIZ for $30 billion so it’s not like all deals are off, but a 70 percent cut in estimates on deals by Goldman is not something I would take lightly.
There is too much growth capital in the markets already and too few IPO’s/new issues.
Combine that with fewer deals and you get a slower money multiplier and slower growth feeding on itself. There is nothing like price to change sentiment.
It must be fun to yell ‘tariffs’, sell cars on the White House lawn and play 5d chess with tweets. It is not fun trying to figure out all the second and third order effects of this ‘policy’. That is my job though and it is part of the business.
I don’t think enough people are listening to the markets respond to this ‘policy’ by tweet and press conference. Founders continue to have unrealistic valuation expectations, even the seed stage level. I have been taking more pitches to track this and I remain surprised by the disconnect. I can guarantee that venture capitalists have not been listening (those sweet 2.5 percent management fees) – which partially explains the founder disconnect – nor the LP’s sloppily allocating to them…especially the growth and later stage ones.
Have a great rest of the day.
