Brett Winton, Chief Futurist at ARK Invest, shares his thoughtson why, following Google’s acquisition of Wiz, he believes M&A is set to be reignited across the innovation space after a dearth of activity over the last few years.
“Google’s $32 billion cash acquisition of Wiz last week marked the sixth-largest US tech M&A in history—and the largest in its own corporate history. The transaction follows a severely restrained M&A environment driven largely by restrictions imposed by the Federal Trade Commission (FTC) under President Joe Biden. The Wiz transaction sends a signal that could propagate across the innovation space.
“Relative to the US equity market, transaction activity hit consecutive record lows in 2023 and 2024. In 2024, M&A transactions were less than 2.5% of the US equity market cap, or roughly half the 4.3% and 5% respective troughs in the early 90s recession and the tech and telecom bust in the early 2000s.
“Ironically, while attempting to curb the power of tech monopolies by restricting acquisitions, the FTC may have strengthened their monopoly power inadvertently. Why? Most M&A transactions destroy value for the acquiring company while benefiting the acquired – yet they pursue these deals anyway to prevent competitors from seizing strategic opportunities.
“This dynamic resembles the ‘prisoner’s dilemma,’ which illustrates how individually rational decisions can lead to collectively suboptimal outcomes unless parties can coordinate. Although large tech companies would collectively benefit by abstaining from M&A activity, individually they feel compelled to acquire competitors defensively. The FTC has, inadvertently, facilitated implicit coordination, effectively aligning individual incentives with collective interests by making M&A impossible for all.
“This has harmed disruptive technology up-and-comers. Without the threat of M&A, short sellers have targeted and depressed stock prices of companies coming to market, effectively starving them of capital.
The return of M&A could catalyse the reversal of a dominant trend – the concentration of enterprise value into the so-called Mag 6. Their share of disruptive tech enterprise value has ballooned to nearly 60% and in the absence of M&A and they have been building cash war chests.
“As the Trump Administration encourages the FTC to deregulate and get out of the way of M&A, the balance sheet fortresses of large cap tech and pharma/biotech companies could pour into innovative companies.
“While the Mag 6 could capitalize on this, the broader innovation space should benefit more. By 2030, our research suggests that the Mag 6’s innovation market cap will drop to historical norms closer to 30%.
“If M&A activity were to return to the average of the last 20 years, this transaction cycle would be unprecedented, surpassing the high-water mark set during COVID by hundreds of billion dollars. Typically, M&A cycles are contagious. The acquisition of strategic assets can cause buyer frenzies benefiting those that remain. Well, Google just sneezed…”
