M&A top tips for tech companies
James Kitching highlights some of the key factors for technology businesses to bear in mind when considering merger and acquisition deals.
Put yourself in the buyers shoes
When you’re selling up, the key is always to put yourself in the buyer’s shoes. “If I was buying a business similar to mine, what would I want to know.” In the case of a tech business, where the USP is a tech platform such as a website or app, then one of the things that a buyer is going to care most about is the source code. As the seller, this means that, pre-sale, you need to ensure there are no gaps as to ownership in your coding; know where all the component parts come from and check that there is nothing that could cause concern to a buyer. There are third party companies that can do this for you and these same companies can then act as a means to report to the buyer, during the buying process, without you having to let the buyer have sight of your code until they’ve actually bought it.
Protect your data
GDPR is the buzzword of the moment, regardless of whether you are in tech or not. And, whether or not the concern is over hyped, it matters to buyers and to dismiss it is a mistake. With the public obsession surrounding data handling, following the public scandals of Facebook and Google, for example, tech companies are often scrutinised to a greater extent by buyers when it comes to GDPR. If your tech company is data rich, then it is important to make sure you have all the necessary policies and the legal justification in place so that there is no reason for a potential buyer to question your processing of data.
Know where you stand with your intellectual property
A seller should know who owns everything that gives the company its value. A buyer will want to know that it’s the seller’s company that holds the IP but this may not always be the case. Is there IP that was originally created by the selling shareholder but never transferred into the company? Has the company engaged consultants to help with certain parts of the business and did they get to hold the rights to anything they created? What are the terms of your employee’s contracts and is there anything in them that may mean they hold the IP they create? As a seller you need to know the answers to all these questions and be able to provide comfort to the buyer that they’ll be exactly what they expect when buying the company.
Look after your loyal customers and your brand
The integration plan for a business is almost as important as the buying process itself. Savvy buyers recognise that they have to keep one eye focused on how the two businesses are going to present themselves to the world well before it happens and often even before they’re sure it’s going to happen. Whether the businesses are of equal size or there is a clear disparity in terms of buyer and seller, the same questions have to be asked. What do the customers care about? How has goodwill grown been maintained? How strong a brand do the buyer and seller have?
In answering these questions it may become apparent that customers couldn’t care less about the name of the company but do care about a particular product or level of service. In other instances, the name and the brand do matter and so it is important to make sure that both are handled with care so as not to lose the goodwill that has been built up. This could mean allowing the company to maintain its identity indefinitely or as part of a drawn out integration process.
Don’t forget your employees!
It is also important to recognise that the bringing together of two companies isn’t just about the loyalty of the customers, it’s also about the loyalty of the staff. Employees make a company what it is and this can’t be ignored during an acquisition. Care has to be taken to identify key employees and to ensure that they’re not lost as part of the process. A valuable asset can quickly become an empty husk if those that make it valuable jump ship.