A group of “unicorn hunters” are successfully acquiring companies without upsetting the market, according to Morgan Stanley. And their performance can turn conventional wisdom on its head.

There are 19 public companies that have acquired at least two “unicorns” —private companies with a valuation above $1 billion — in the past decade, equity strategist Edward Stanley said in a note to clients Tuesday. This group could acquire the top 30 unicorns, or more than 800 smaller ones, using just two-times their net-debt-to-EBITDA ratio, a measure of leverage.

This group of 19 has outperformed the broad S&P 500 index by 45% over the past five years. And it has outperformed by 16% so far this year alone, an especially strong performance considering the broad index was up about 13.8% in 2023, as of Tuesday’s close.

That outperformance can defy conventional market wisdom, as investors typically prefer companies that focus on internal innovation over those that opt for buying private businesses, because the latter can be more costly.

So what’s driving this outperformance that flies in the face of expectation? Morgan Stanley said these companies have a heavy bias toward technology and medical technology, two areas that outperformed the broader market between 2018 and 2022, and since coming off recent lows in 2023.

These companies have also been focused on free cash flow generation and deleveraging as opposed to top-line growth in 2023. With this in mind, Stanley questioned whether unicorn hunting is a smart business strategy with the stocks recently not rewarded.

But Stanley said the focus going forward should be on whether this group resumes merger and acquisition activity in coming quarters. Also important will be whether they can acquire unicorns at a reasonable price that benefits shareholders, something Stanley said has become more difficult because delayed structure raises and bridge rounds can push back valuation resets.

And this comes as the market for unicorns shifts following two years of tightening liquidity conditions. The slide in unicorns is especially stark when considering what the market would look like without a boost from the excitement around artificial intelligence, he said.

And Stanley said the challenging landscape for unicorns has made it a “buyers market.” Those most at risk of seeing a valuation cut or being acquired are those that were named unicorns since 2020, when liquidity conditions were the easiest, he added.