Feb
21

The USA Technology Sector in 2022: Market Overview

The USA Technology Sector in 2022: Market Overview

Investors in emerging markets are performing an increasingly important function in funding early-staged USA-based technology companies. Capital invested by Middle Eastern and Southeast Asian investors in the sector increased by 85% between 2021 and 2022, with venture capital transactions responsible for 57% of all investments in the industry in 2022.

Economic growth has continued in emerging markets such as the Middle East and Southeast Asia, prompting early-stage technology companies to be mindful of international fundraising opportunities.

The Decline of the USA Technology Market in 2022

Publicly listed technology stock in the USA fell by 30% in 2022 (Forbes.com). Economic uncertainty, inflation, and increased interest rates to reduce excess liquidity within the market were driving factors in the decline. The decrease in investor appetite for technology stocks has led to a sharp reduction in valuations, and decreased access to funding from USA markets.

  • The Dow Jones U.S. Technology Index was down by over 35% in 2022, in contrast to 2021, which was a landmark year for the index, setting a record high of 4,866.69 on December 27, 2021 (SPGlobal.com).
  • Other technology-focused indexes illustrated similar diminishing returns, with the Nasdaq Composite falling 33% in 2022 (Forbes.com), indicating a reduced appetite for technology stocks.
  • Valuation negotiations between founders and investors have altered drastically. Valuation based on projected revenue multiples is no longer the norm, and early-stage investors increasingly utilize traditional price-to-earnings ratios (TechCrunch.com).

Growth of Emerging Markets in 2022

  • Increasing interest rates and escalating fuel prices caused slow growth in developed markets in 2022. The USA and UK experienced GDP (Y-o-Y Q4) growth rates of less less than 1% compared to 2021 Q4, with similarly slow growth occurring across the European Union (tradingeconomics.com).
  • Conversely, the increase in fuel prices, caused in part by the war in Ukraine, aided the GDP growth of Middle Eastern states such as Saudi Arabia (9% Y-o-Y Q4 GDP), the UAE (4% Y-o-Y Q4 GDP), and Qatar (4% Y-o-Y Q4 GDP). Post covid reopening economies, large infrastructure projects, and the tourism sectors’ continued development have also contributed to the region’s growth.
  • Despite challenging global economic conditions, Southeast Asia remains one of the world’s fastest-growing emerging regions. Malaysia, Indonesia, and Singapore all grew GDP by over 4% in Y-o-Y Q4 2022, driven by reopening travel routes and increased trade and commerce.
  • $400 billion was invested by Middle Eastern and Southeast Asian investors into USA-based technology between 2012 and 2022, with 60% occurring between 2020 and 2022 and $155 billion deployed in 2022 alone.
  • The deal count conducted by Middle Eastern and Southeast Asian investors into USA-based technology companies increased from under 150 transactions in 2012 to over 1,000 in 2021.
  • The sector’s deal count decreased by 24% between 2021 and 2022, yet capital invested in the industry increased by 85% during the same period, showing a continued appetite to invest in USA-based technology companies and a leaning towards more significant deals.
  • Venture capital transactions accounted for 57% of the deal count by Middle Eastern and Southeast Asian investors into USA-based technology companies in 2022.
  • Despite challenging economic conditions, the focus on early-stage companies further highlights the appetite to invest in USA-based technology companies, showing the strength of the US technology industry and the trust that international investors have in the US financial markets.
Early-stage technology companies from the USA should consider opportunities to raise funds internationally. Uncertain economic conditions in developed economies have reduced capital market activity, particularly for early-stage transactions. Middle Eastern and Southeast Asian investors have an increased appetite for USA-based tech companies, evidenced by the growing amount of capital deployed.

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Sources: Pitchbook Data, Inc.

Aug
12

How Will the US Economic Downturn Affect M&A Activity?

How Will the US Economic Downturn Affect M&A Activity?

Real GDP in the USA decreased by 0.9% in Q2 of 2022 according to the Bureau of Economic Analysis. This follows a 1.6% decrease in 2022 Q1, resulting in the USA economy falling into recession. The USA is not alone, with developed nations like Germany, Japan, and an array of others experiencing similar contractions according to Reuters.com. The global economy has been impacted by numerous exogenous shocks over the past 30 months, including lockdowns, supply chain crises, stimulus packages, and oil price hikes among others.

The economic conditions will undoubtedly affect capital markets, but the outcome remains uncertain. The reduction in liquidity could shrink capital market activity. Alternatively, a slowing business cycle could result in a buyer’s market, allowing for aggressive consolidation and roll-up strategies. This article will investigate the difference in capital market activity between 2021 H1 and 2022 H2 to determine the effects of the downturn in Western markets.

Why the USA Remains Critical to Capital Markets

  • The USA has contributed 64% of capital deployed in M&A deals since 2020, with a total spend of $4.33 trillion. Businesses in the UK, France, and Japan conducted significant M&A deals within the period with 10%, 5%, and 3% of capital deployed, respectively.
  • Over the same period, 22,178 announced deals have been conducted by companies from the USA.
  • The economic downturn in the USA and major Western economies will impact capital markets in 2022 and beyond.
  • Capital deployed in M&A deals globally increased by 67% from 2021 H1 ($1.15 trillion) to 2022 H2 ($1.91 trillion). Deal count within the period has remained stagnant with a 3%decrease between 2021 H1 (12,692 M&A transactions) and 2022 H1 (12,302 M&A transactions).
  • Median deal size increased from $19 million and $24 million in 2021 Q1 and Q2, respectively, to $31 million and $43 million in 2022 Q1 and Q2, respectively.
  • The highlights an increased appetite for acquisition despite economic downturns, as role-up strategics become increasingly aggressive leading to larger deal sizes. Challenging business conditions would drive the supply side demand while lower valuation would lead to an increase in demand for acquisitions.
  • Capital deployed in cross-border M&A deals by USA-based companies increased by 59% from 2021 H1 ($69 billion) to 2022 H2 ($169 billion). Deal count grew consistently by a 13% increase between 2021 H1 (706 M&A transactions) and 2022 H1 (813 M&A transactions).
  • Median deal size increased from $53 million and $46 million in 2021 Q1 and Q2, respectively, to $70 million and $150 million in 2022 Q1 and Q2, respectively.
  • The data suggest significant growth in cross-border M&A activity by USA-based companies. The degree of competition in domestic markets as well as more affordable valuations in international markets will continue to drive future cross-border transactions.
M&A in the first half of 2022 has grown significantly, with a 67% increase on 2021 capital deployment in the sector over the same time period. The true effects of a recession remain unknown. The data suggest that firms have capitalized on lower valuation multiples and challenging economic conditions to execute inorganic growth strategies. Retained profits achieved in 2021 are likely to be used to execute acquisitions. Liquidity within the market will continue to shrink as global monetary policies tighten, so it is uncertain whether the surge in M&A activity will continue. Current economic conditions present the ideal buyer’s M&A market.

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Sources: www.bea.gov/data/gdp/gross-domestic-product, reuters.com/markets/europe/global-markets-recession-risk-2022-07-28, Pitchbook Data.

Dec
06

Middle Eastern Investors and USA Startups

Middle Eastern Investors and USA Startups

Fintech as a sector increased its cross-border capital market activity in 2021. The first 10 months of 2021 saw a 300% increase in capital deployed by Middle Eastern investors into USA startups at 2020 levels. (In this report, startups are classified as private organizations that raise capital through venture capital or growth-stage private equity rounds.) Middle Eastern investors have an appetite to invest in USA-based early-stage fintech companies. Stripe and Square may be grabbing the headlines, but smaller companies have been successful in raising early-stage funding internationally.

Capital Market Activity

Middle Eastern investors have deployed approximately $6.5 billion into early-stage fintech companies based in the USA since 2020. Within the segment, 164 announced deals have been conducted. Middle Eastern investors’ desire to diversify their portfolios away from oil and natural gases and into high-growth private companies drives the increase in market activity.

  • Deals between USA-based fintech companies and Middle Eastern investors increased significantly between 2020 and 2021. In 2020, a total of $1.45 billion was deployed across 67 deals. In the first 10 months of 2021, $5.1 billion has been deployed across 97 deals.
  • Between Q2 of 2020 and Q2 of 2021, capital deployment increased 10-fold while deal count more than doubled. In 2020, Q2 was the least active quarter of the year due to the economic effects of the global lockdowns. Deal count and capital deployment has increased steadily over the remainder of 2020 and 2021.
  • The largest deal in the sector was SpotOn’s $300 million Series E round. Mubadala Investment Company participated in the round, alongside Andreessen Horowitz and a consortium of other investors. The Series E saw SpotOn’s valuation increase from $1.875 billion to $3.15 billion, and the funds will be allocated towards acquisition financing.

Active Type of Transactions and Company Sizes

 

Active Investors and Their Latest Deals

Israeli venture capital funds lead the region with respect to deal count in the sector. Connections between the USA and Israeli capital markets remain strong with significant activity across software and technology sectors. Investors from the United Arab Emirates and other Gulf states are also increasing investments in USA-based fintech companies.

  • AltaIR Capital, a Tel Aviv–based venture capital firm with $600 million in assets under management, has conducted 14 deals with USA-based fintech companies since 2020.
  • Mubadala Investment Company, Abu Dhabi’s sovereign wealth fund, invested in eight USA-based fintech startups. The group maintains a median check size of $200 million across sectors.
  • VentureSouq is the only investor on the most active list whose most recent deal in the sector was a seed-stage investment. The Dubai-based venture capital fund has made 141 investments since its inception in 2013 and has a median check size of $4 million.
  • Later-stage venture capital deals dominated capital deployed by Middle Eastern investors into USA-based fintech companies. Later-stage venture capital accounted for 69% of capital deployment and 34% of the deal count within the sector.
  • Growth and early-stage venture capital deals saw the largest percentage of deals with 36%, while accounting for 20% of capital deployed.
  • Incubators, pre-seed, seed, and angle rounds were not a significant contributor in the sector. This highlights the need for a proven business model, established products and services, and small yet stable income streams before raising capital from international sources.
Overall, the fintech sector is progressively increasing its capital market activity. Despite the pandemic slowing down other businesses’ activities, fintech deals from the USA received over $5 billion in capital in the first three quarters of 2021 from the Middle East alone. As the need for strong technology increases in the Middle East, J&A expects deal size and deal count to increase over the upcoming years. As the early-stage companies develop and establish new technology trends, funding for acquisitions will increase for the entities with a longer presence in the international markets.
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Dec
06

USA Investors and Middle Eastern Startups

USA Investors and Middle Eastern Startups

Middle Eastern fintech companies have experienced a boom in capital market activity since the start of 2021 and the reopening of the global economy. The fintech industry is rapidly developing and disrupting traditional banking and financial institutions. Fintech startups in the United Arab Emirates, Egypt, and Saudi Arabia have conducted significant capital market activity since the start of 2020. Notably, groups in the segment have attracted investments from USA-based venture capital sources.

This report explores the investments made by USA investors into Middle Eastern fintech startups since 2020. Only announced deals are analyzed. This report will outline the type, volume, and industry of deals conducted by USA investors into Middle Eastern companies.

  • USA investor activity in the Middle East slowed down in 2020, as it did for most other cross-border investments. After the normalization of the global capital markets, fintech startups in the Middle East capitalized on the USA investor appetite. Transactions grew steadily in 2021, leading to over 20 investments in four quarters, from Q3 of 2020 to Q3 of 2021.
  • In Q4 of 2021, the average capital invested per deal more than doubled. Due to this, the overall capital deployed increased by 1,750% in 2021 compared to 2020.

Cross-Border Fintech Venture Capital Investments: USA Investors and Middle Eastern Companies

  • Significant deal count (37%) and capital deployment (39%) by USA-based investors into Middle Eastern fintech startups occurred within seed-stage investments. This shows the development of new companies designed to serve an underserved market and the strong potential for growth in the space.
  • Incubator funding made up 39% of the total sector deal count but less than 1% of capital raised. This suggests that most deals in the incubation phase were conducted without capital being injected into the business.
  • Early-stage venture capital accounted for 22% of deal count and 69% of capital deployment. The growth and funding of Middle Eastern fintech startups will lead to a boom in the sector as traditional banking and financial institutions are disrupted.

Deal Spotlight: Tarabut Gateway

The Company

Tarabut Gateway is a financial technology and software development company that has created a platform to regulate the banking sector. The platform is designed to connect a regional network of banks and other fintech companies through a universal applications programming interface (API). Tarabut’s platform utilizes the API to assist in the transfer of data and to create a greater level of integration within the finance sector in the region.

Recent Fundraising

  • Tarabut Gateway completed a pre-Series A round of $12 million on November 2, 2021, at an undisclosed valuation.
  • Tiger Global Management led the round with Dubai International Finance Center and other undisclosed investors participating.
  • Tarabut Gateway had previously raised $13 million through seed funding in February 2021, which was also led by Tiger Global Management.
The fintech sector is rapidly developing in the Middle East, and early-stage companies will drive transformation within the banking and financial sectors. International investors should be mindful of the growth potential of the sector and the opportunities that well-funded startups can capitalize on. J&A forecasts the continued expansion of capital market activity between USA-based venture capital funds and Middle Eastern fintech startups.
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Jun
08

Cross Border Capital Markets Report: SEA Investors and USA Companies in 2020

Cross Border Capital Markets Report: SEA Investors and USA Companies in 2020

This report highlights investments made by Southeast Asian (SEA) investors into USA companies throughout 2020. Only announced deals are analyzed in this report. This report outlines the type, deal count, dollar volume, and industries of deals conducted by Southeast Asian investors into USA companies. Singtel Innov8 is part of the investor spotlight feature, and Stack Overflow is analyzed as the deal spotlight.

Southeast Asian Investors and USA Deals: Deal Count and Volume

In 2020, 248 institutions and individual investors from Southeast Asia closed 373 transactions in USA companies and invested a total of $32 billion. The following graphs show deal count and deal amounts in 2020.

FIGURE 1: Deals by SEA investors in USA Companies Investments Over Time

Data provided by Pitchbook, accessed March 4, 2021

Number of Deals by SEA investors in USA Companies: 2020

  • Compared with private equity firms and corporations, SEA venture capital firms closed the most deals in USA companies. In 2020, deal counts were 10% lower compared to 2019, largely due to the COVID-19 pandemic.
  • Transaction volume decreased by 30% as a direct result of the pandemic in Q2 of 2020. Transaction volume increased in Q3 and Q4.
  • The number of venture capital deals in Q2 did not significantly decrease as a result of the pandemic. However, M&A and private equity deals did decrease in Q2 2020 as a result of the pandemic.

Dollars Invested by SEA Investors in USA Companies: 2020

  • In 2020, 96 USA companies raised a total of $7 billion from SEA investors, for an average deal size of $73 million in Q1. Despite the decrease of deal counts in Q2, 68 USA companies raised $19 billion from SEA investors for an average deal size of $289 million.
  • Private equity firms from SEA closed major investments into USA companies in Q2 at the height of pandemic tensions at a total of $14 billion.
  • In Q3 and Q4, a total of 177 companies raised approximately $4 billion in each quarter from SEA investors.

SEA Investors and USA Investments: Investments by Industry

SEA investors’ capital infusion in USA companies are predominantly seen in fast-changing and popular verticals like fintech, AI, machine learning, and technology, media, and telecom (TMT). Most of the investments in these verticals are SaaS-based solutions.

FIGURE 2: Capital Breakdown

Data provided by Pitchbook, accessed March 4, 2021
  • Ultimate Kronos Group in the $11 billion leveraged buyout round was the largest deal closed by a North American company in which an SEA investor participated in 2020. Formerly known as Ultimate Software Group, the company was acquired by Kronos through its financial sponsors Hellman & Friedman, Blackstone Group, JMI Equity, and the Government of Singapore Investment Corporation (GIC).
  • The following SEA investors also participated in other well-known USA companies:
    • GIC invested in Affirm, in its $510 million Series G round completed in September.
    • Temasek Holdings, a Sovereign Wealth Fund in Singapore, invested in Impossible Food in its $200 Million Series G round completed in August.

Investor Spotlight: Singtel Innov8, Singapore

Singtel Innov8, a wholly-owned subsidiary of the Singtel Group, is a corporate venture capital fund based in Singapore with offices in San Francisco and Tel Aviv. Singtel Innov8 invests in companies that create next-generation devices and digital content services that enhance customer experiences. Their investments are in all stages of the company’s life cycle.

Figure 3: Singtel Innov8 Investments by Industry: 2018-2020

Data provided by Pitchbook, accessed March 4, 2021
  • Singtel Innov8’s assets under management were $256 million from 2018 to 2020, and they made a total of 128 investments. To date, Singtel Innov8 has done 45 exits and maintains 45 active portfolios.
  • Singtel Innov8’s preferred ticket size is between $100 thousand to $23 million, and their preferred vertical is TMT software. They prefer minority stakes and will lead on a deal.
  • In 2020 Singtel Innov8 made 12 investments with an average deal size of $36 million.

Deal Spotlight: Stack Overflow (Cloud Tech DevOps)

Stack Overflow is a New York-based Series E company that provides an online community created to help developers learn and share their knowledge. The platform is a free and open forum that hosts a collaborative library of coding knowledge, which includes real-time interactive software, advertising opportunities, and services for technology recruiters helping users build their careers in tech.

SEA Investors Feature: Government of Singapore Investment Corporation (GIC)

GIC is a global investment management firm established in 1981 to manage Singapore’s foreign reserves. GIC invests in public and private equity with a focus on healthcare, financials, and business services. Additionally, it focuses on natural resources, real estate, fixed income, and alternative markets including foreign exchange, commodity, and money market sectors across the globe.

  • GIC led Stack Overflow’s $85 million Series E round on July 28, 2020, putting the company’s post-money valuation at $685 million.

Most Southeast Asian investors initially invest in USA-based companies at Series C round and later. Singapore sovereign wealth funds like Temasek Holdings and venture funds such as Wavemaker Group were active investors in USA-based companies’ capital raise during 2020.

May
03

The US Government’s Debt-to-GDP Ratio Is Worse Than Greece’s Before the 2008 Crash

The US Government’s Debt-to-GDP Ratio Is Worse Than Greece’s Before the 2008 Crash

The USA’s Debt-to-GDP Ratio is rising. The managing editor of the Foundation for Economic Education (FEE), Jonathan Miltimore, quotes our managing director, Joshua Jahani.

https://fee.org/articles/us-government-s-debt-to-gdp-ratio-is-worse-than-greece-s-before-the-2008-crash-and-it-s-about-to-get-worse/

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