Appetite is big for cloud acquisitions, but that doesn't mean every cloud startup should be itching to sell out just yet.

The Wall Street Journal reported over the weekend that three recent major acquisitions of cloud companies reflect a larger trend of an increase in software mergers and acquisitions:

"Three big cloud-related acquisitions were announced last week. Salesforce.com agreed to buy Demandware for $2.8 billion net of cash. Private-equity firm Thoma Bravo is paying $3 billion for Qlik Technologies while another, Vista Equity Partners, is picking upMarketo for $1.8 billion. This just a month after Oracle spent about $1.2 billion on a pair of deals, buying up Textura and Opower.

"Those are just some of the more notable moves of late. According to Dealogic, 739 M&A deals targeting U.S. software firms have been announced so far this year. If activity keeps up that pace, this year will exceed last year's record of 1,526 software deals. Deal value so far this year has totaled about $52 billion."

Following a rebound in valuations of cloud software companies, it would appear now is as good a time as any for cloud startups to look for buyers. The Journal reports Bessemer Venture Partners' index of cloud-based companies, which dropped by 36 percent from the start of the year into mid-February, has climbed back to seven percent below where it was at last year. Mergers and acquisitions have meanwhile been on the uptick this year, but "prices still aren't cheap" for the companies being acquired.

Foundation Capital partner Ashu Garg, who works with cloud startups, says the trends mean it's a good time for some private cloud companies to sell to larger companies. He says that in particular, cloud companies that provide services that could be considered augmentations of what larger companies do should consider positioning themselves for acquisition. "What was a company six months ago becomes irrelevant because AWS [Amazon Web Services] added that as a feature," he explains.

But he thinks cloud startups should consider whether partnering with larger companies may hold more benefits than acquisition, especially if a startup is doing something that would be more challenging for a larger company. He says mobile focused cloud software, for example, is in a good position to leverage a partnership as larger companies continue to reap the lion's share of their revenues from desktop applications while users split time between desktop and mobile equally.

Still, Garg says, with interest in acquiring cloud companies apparently high, it's as good a time as any to consider acquisition "if along the way you get an acquisition offer you can't refuse."

Published on: Jun 7, 2016