As we look closely at the lifecycle of Technology and Digital companies, it is clear that very few companies ultimately exit through an IPO process, as the majority of companies either merge with a larger organisation or exit through some form of an M&A process at a certain stage along this long and exciting journey. In the current post-pandemic highly favourable investment environment, there are plenty of reasons for entrepreneurs to consider strategic alternatives. As an entrepreneur, selling your business or acquiring another one may be one of the biggest financial decisions you ever make. It is no small undertaking and hence it is best to do it right the first time. Often, a high number of business owners believe that their legal advisors and counselors or their accounting or audit team can advise them on executing a transaction. The cost of ignoring the value that an M&A advisor brings while executing a transaction can be huge. From getting your finances in order, remaining focussed on your business and preparation to negotiating the best deal with buyers and sellers, and everything in between, there’s certainly a lot to manage with nearly no room for expensive mistakes. While some debate the issue of whether to hire an M&A advisor or try to complete a transaction independently with internal teams or with tactical support from Subject Matter Experts, it’s been well-proven that a good financial advisor can add significant value to completing a transaction successfully and ensuring it meets the objectives of shareholders from the deal and subsequent post-deal journey with the acquirer/investor.
Ideally, preparation for any M&A transaction requires at least a 12 to 18 months runway to shape the best journey and optimise the value creation process. For a sell-side transaction, one must recognize that the perceived value of any company is directly correlated with the quality of information that is made available to an acquirer or investor. Building a track record and financial performance trendline over 4 quarters, preparing the valuation and industry benchmarks, and precisely articulating the company’s value and roadmap to investors in such a process takes time, but the rewards for this effort can be considerable. Buy-side advisors guide clients through all stages of the process, from rigorous preparation to enabling initial investor discussions to ultimately closing a deal. All the while, they are carefully managing points of communication and data requests. It takes dozens of contacts between the advisor and a single prospective seller to get a deal done—a time commitment that makes advisors critical to a successful process. An experienced M&A advisor who understands your industry can bring unique investor insight, drive significant reach and bring multiple interested parties to the transaction, and prepare the company and shareholders for any transaction, which is crucial for success. Choosing a specialist firm vs. a generalised M&A advisory firm is another aspect that entrepreneurs in the Technology industry pay careful attention to, given the complexity of issues and opportunities to create differential performance in a highly competitive environment and drive growth through a successful M&A transaction.
Based on the decades of experience our partners have gathered in the Technology industry, the following are the benefits of hiring an experienced M&A advisory firm on your side while buying or selling your business:
1) Establish Clear Goals: Link them to M&A transaction outcomes
In our experience, any M&A transaction involves a significant amount of preparation over several months if not a year, yet it is only a means to an end goal. The end goal or purpose is typically Growth or Value monetisation depending on the specific goals one may have with respect to a Technology business built over several years. One of the first things an M&A advisor would do is to help understand all aspects of the transaction being considered and help you establish clear objectives and priorities such that the potential outcomes are clearly understood. Most mid-sized or smaller companies, where stakeholders are either acquiring or exiting a technology company for the first time or have very limited bandwidth outside of their core responsibilities as a CEO, CFO or Business Leader running and growing the existing business, it becomes very difficult to manage an M&A deal process which could take 4-6 months to conclude. In most cases, the cost and impact on the existing business make such involvement unviable and this is where an experienced M&A advisor can make all the difference. They take the time to formulate a comprehensive understanding of your business and building a SWOT, analyse the market position, competition and opportunities within your industry. Acquirers must articulate exactly why and where they need M&A to deliver on specific themes and objectives underlying their overarching inorganic growth strategy. Similarly, sellers must also be clear about why they want to sell their business and articulate their future plans.
2) Expand the Universe of Opportunities: Run an efficient M&A process
By and large the middle market Technology M&A landscape is an inefficient market for both Investors and Entrepreneurs. Often, if you have only one interested investor or acquirer for your business, there is no price discovery to determine whether the valuation offered is fair and therefore no improvement in the valuation or terms offered occurs. Additionally, unless the deal structure involves nearly no earn-out or future consideration, there needs to be a comprehensive review of the deal structure, especially as it relates to consideration linked to the future performance of the business, which is expected to be delivered by the sellers. Similarly, for an acquirer, reasons to acquire are usually very specific and the case for acquiring a company, whether it is for scope, scale or capability addition needs to be well understood. As a result, expanding the universe of possibilities and gaining access to the best companies within a sector of interest to invest in or acquire, is paramount to achieving desired M&A outcomes. The role an experienced advisor plays to help you expand the universe of possibilities for the transaction is often underestimated, yet has probably the most impact to value realized in any M&A transaction.
3) Lead Negotiations on valuation, deal structure: Realise M&A outcomes
Experienced M&A advisors clearly understand the fact that there is no “one size fits all” in negotiation strategies. Each deal has its own set of unique attributes and nuances, to which skilled negotiators are constantly adapting their skills. Deal advisors also make sure their clients thoroughly understand the deal terms and their implications before they enter into negotiations. This is typically part of the investment strategy workshop or discussions with the client to identify critical deal components and how they may be impacted in negotiations. M&A advisors have both a thorough understanding of the structural elements of the deal and the creative ability to put them together in the manner that best benefits the specific deal situation and meets client objectives.
Last but not the least, the right advisor brings exceptional M&A experience and perspective to your side. Selecting one that brings in experience and depth specific to your industry or sector is the bigger challenge for most business owners. Inability to empanel the right advisor could actually end up costing you more money and time and worsen your outcomes, instead of improving them. At SA, we bring unparalleled experience in scaling, acquiring, and successfully exiting a range of technology companies backed by some of the largest PE and Venture Capital investors. Our partner-led, team-oriented approach and a proven tech-enabled process have put us in a unique position to help clients accelerate their Digital Transformation growth through M&A.
To share feedback on this blog or explore transaction opportunities for your firm with us, please write to us at [email protected]