Topic of the Quarter
A New President: A New Outlook For Founders
A new year and new Administration bring an opportunity for founders to reassess their business operations, timing for a liquidity event, or financing prospects to accelerate growth. From potential shifts in regulatory landscapes and Federal policy, to the IPO market and tax structures, the new year promises both potential opportunities and challenges.
Changes to the M&A Landscape Amid FTC Transition
Trump’s appointment of Andrew Ferguson as Federal Trade Commission (FTC) Chairperson signifies notable changes in the M&A environment. The administration is expected to reevaluate stringent merger guidelines introduced in 2023, potentially relaxing thresholds for anti-competitive behavior. This may open doors for heightened deal-making, as fewer transactions face regulatory roadblocks for litigation. However, it is important to note that Trump and VP-elect Vance have indicated that they align with Lina Kahn’s viewpoint toward Big Tech in some capacity. The administration may continue to target tech giants like Alphabet, Meta, and Microsoft following bipartisan concerns about monopolistic practices. However, some speculate that the focus may be primarily on the social media vertical, as Trump has vocalized support for censorship malpractice allegations toward Meta and others.
For mid-market companies, reduced scrutiny of smaller and mid-sized deals and a focus on implementing structural adjustments to address antitrust concerns, rather than outright blocking transactions, might accelerate dealmaking.
Tax Policy Implications
Trump’s tax policies could once again favor founders. During his first term, the 2017 Tax Cuts and Jobs Act reduced the corporate tax rate to 21 percent and introduced pass-through deductions for small businesses. Analysts speculate that the new administration may extend or even expand these cuts, maintaining a low tax burden for founders and providing incentives for growth and reinvestment. In early September, Trump proposed cutting the corporate rate further to 15 percent for companies who do not “outsource, offshore or replace American workers.” Uncertainty also surrounds whether R&D expenses will once again be fully deductible in the year incurred—a reversal of the original Tax Cuts and Jobs Act of 2017 provision, which was proposed in the failed Smith-Wyden Bill of mid-2024 (as discussed in our Q3 Founder Essentials note).
Crypto Czar: What Does this Mean for Crypto and AI Frameworks?
In a significant move, Trump has named David Sacks as the nation’s first “Crypto Czar.” Sacks is known for his pro-innovation stance and is expected to implement light regulatory frameworks around cryptocurrencies and AI. This approach aligns with the administration’s anticipated preference to avoid stifling any emerging technologies with excessive regulation.
With guardrails still taking shape, founders touching the crypto and AI sectors can anticipate a regulatory environment that promotes growth while introducing foundational, albeit preliminary, safeguards. Many industry participants anticipate a balanced approach, ensuring innovation continues without compromising security or consumer protection.
A Positive Outlook for the IPO Market
Since Trump’s reelection, the NASDAQ and S&P have risen by 8% and 5%, respectively. This strong market performance bodes well for the IPO market in 2025. Combined with the successful public debut of ServiceTitan (NASDAQ: TTAN), it suggests a more active year for public listings ahead, offering greater opportunities for mid-market tech companies to capitalize on favorable market conditions.
A look back through 2024 reveals momentum has already begun to build. The past year saw 14 significant tech IPOs, in comparison to just five in each of the previous two years. Many expect the IPO market to truly heat up toward the end of the year, and the level of first-quarter M&A momentum would provide a good indication of what degree of activity can be expected. It is noted that many Unicorns sit idle (as we mentioned in our Q4 2024 Founder Essentials edition), such as Chime, CoreWeave, Discord, and Stripe, who are primed for a public offering, if not, a sale.
Federal Policy and Interest Rate Environment
The Federal Open Market Committee announced a quarter-point rate cut on December 18th, continuing the cycle it started in September. However, the cut came with projections of higher inflation, lower unemployment, modestly stronger growth and fewer anticipated rate cuts next year. Powell and his team are taking a data-driven, wait-and-see approach, planning additional cuts only if economic indicators warrant them and align with the Fed’s inflation target. Analysts warn that further cuts may face challenges due to Trump’s push for greater influence on rate decisions and policies like tariffs and immigration crackdowns, which could drive up price pressures. Founders should closely monitor the Fed’s response, as the impact of its policies remains uncertain.
While the Fed may not reduce interest rates dramatically, there has been an overall reduction in late 2024 that bodes well for M&A activity in the coming year. These actions are expected to create a more favorable borrowing environment, incentivize greater private equity spending, and support higher deal multiples. Additionally, lower interest rates will enhance corporate cash flows and discourage companies from holding idle capital, potentially driving them toward acquisitions.
The new Trump administration’s policies present an overall promising landscape for mid-market founders. While Big Tech remains under scrutiny, the potential relaxation of merger guidelines, favorable tax policies, and a supportive IPO environment create significant opportunities. Founders should remain vigilant and adaptable to navigate these evolving dynamics effectively.
Source: Reuters, S&P Global, National Law Review, Wall Street Journal, and Pitchbook
Founder-Led / Bootstrapped Deal Activity Snapshot
Q4 2024: Notable U.S. based M&A deals in Tech
Autonomy/IoT/Computer Vision
12/30: Photoneo, machine vision scanners for manufacturing, acquired by Zebra Technologies (NAS: ZBRA). Link
12/12: OhmniLabs, personal communication robots, acquired by Symbotic (NAS: SYM). Link
Big Data & AI
12/16: phData, big data management services and engineering, acquired by Gryphon Investors for $320mm. Link
12/3: EZOPS, data control, reconciliation and automation software, acquired by NeoXam. Link
11/21: Cloudrise, data protection and orchestration platform, acquired by Exclusive Networks (PAR: EXN). Link
11/20: Datavolo, dataflow infrastructure platform, acquired by Snowflake (NYS: SNOW). Link
11/13: Spire Maritime, maritime data analytics and insights platform, acquired by Kpler via Insight Partners for $241mm. Link
10/28: Kinney Group, machine data analytics software and services, acquired by Presidio via BC Partners and CDR. Link
10/15: Command AI, AI user assistance tool, acquired by Amplitude (NAS: AMPL). Link
10/15: Dasera, data security platform, acquired by Netskope. Link
Data Center
12/19: OSC Edge, IT engineering and data center management services, acquired by Cook Inlet Region. Link
11/14: Jetcool, direct-to-chip liquid cooling technology, acquired by Flex (NAS: FLEX). Link
10/17: Motivair, data center cooling solutions, acquired by Schneider Electric (PAR: SU) for $850mm. Link
Software
12/11: SpinSci, AI-powered healthcare SaaS applications, acquired by Aldrich Capital Partners for $53mm. Link
12/5: Intelligence Node, retail analytics platform, acquired by The Interpublic Group (NYS: IPG). Link
11/12: CargoSprint, freight and logistics platform, acquired by Lone View Capital. Link
10/30: Cacheflow, B2B software selling and buying platform, acquired by Hubspot (NYS: HUBS). Link
10/16: Lucy, knowledge management platform, acquired by Capacity. Link
Professional Services
12/16: Applied Value Technologies, an IT consultancy firm, acquired by Wipro (NSE: WIPRO) for $40mm. Link
12/9: Paradyme Management, public sector IT services, acquired by Cathexis Consulting. Link
12/4: Raja Software Labs, software development services, acquired by Ness Digital Engineering via KKR (NYS: KKR). Link
11/29: Daugherty Systems, IT and consulting services, acquired by CGI Group (TSE: GIB.A). Link
11/21: Award Solutions, tech training and consulting services, acquired by Accenture (NYS: ACN). Link
11/12: Softrams, public sector digital services integrator, acquired by Tria Federal via Sagewind Capital. Link
11/11: Intelliswift, software development and AI services, acquired by L&T Technology Service (NSE: LTTS) for $110mm. Link
10/28: Dignari, tech consulting and security services, acquired by E&Y for $80mm. Link
10/2: PartnerHero, outsourcing and offshoring consulting services, acquired by Crescendo. Link
eCommerce
11/22: Olive & June, D2C manicure and beauty products, acquired by Helen of Troy (NAS: HELE) for $240mm. Link
10/17: Pointer Creative, ecommerce strategy and design services, acquired by eHouse Studio. Link
10/14: SellerCloud, platform for omnichannel selling, acquired by Descartes Systems (TSE: DSG) for $110mm. Link
Source: PitchBook