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VMWare, a sign of things to come?
This week, Broadcom announced it would acquire VMWare for $70B, the largest acquisition in software history.
Surprisingly, the acquisition comes amidst the biggest market correction since 2008 and one that might look like the dot-com bubble of 2000-01.
It's hard not to speculate if this acquisition is a sign of things to come. Software stocks are at their lowest multiples in over 5 years, and private funds and high-performing companies are flush with cash.
Historically, these conditions create a vibrant M&A market. This time, one more factor could increase transaction activity - SPACs. Over the last 18 months, several technology companies entered the public markets via SPACs. These companies have fared even worse than the broader market.
The transition from a private company to a public company includes many changes, and one of them is your price is always on display for all to see, meaning you are always for sale. Public companies can't hide from the 70% collapse in multiples the way startups can.
These next few quarters will be interesting. There are great companies currently out there at valuations that now make sense and likely represent a discount to where the market will value them in 5 years.
Those with dry powder and long hold times could find themselves with generational returns if they execute in the coming months.