The Federal Trade Commission’s focus on technology has transfigured the M&A market for startups.

The Google anti-trust lawsuit & Amazon anti-trust cases may stifle those companies’ ability to acquire startups for significant sums. Facebook has faced a similar suit for illegal monopolization, which resulted perhaps indirectly in the divestment of two of its more recent acquisitions. Microsoft’s most recent acquisition of Blizzard nearly didn’t succeed & the FTC continues to pursue means to reverse it or win concessions.

Anti-trust pressure - whether in the form of lawsuits or delayed closings (which can last 18 months after signing) - alters the M&A market for startups.

First, the four companies mentioned above represent 69% of market cap of publicly traded software companies & have amassed 67% of cash & short-term equivalents.

If sidelined, this supermajority of startup purchasing power decimates the M&A market disproportionately. Since the next rung of acquirers’ market caps are about 90% smaller than these four, multi-billion dollar acquisitions become much rarer.

Compare Microsoft at $2.5t to Adobe at $240b.

Second, acquisition offers from these four megacaps are impaired - they carry with them the prospect of a failed merger & present greater peril to a startup.

The limbo between a signed deal & a closed merger places a startup in a no-person’s land where the companies must operate independently, yet the ecosystem perceives the target as captive.

Last, the decreased competitive pressure from four major buyers deflates auction pressure, blunting price discovery in a sale process.

Large acquisitions remain possible but will be rarer. Cisco’s acquisition of Splunk proves the point.

In addition, private equity, which has represented up to half of all software exits in certain years, may rise to fill the gap - though not at the same prices.

The exit market remains more closed than in the last few years & anti-trust is one significant contributor.