Mergers and Acquisitions: All Set, Jump Aboard …Hmm not so fast!

By Joanne Kelley, Certified M&A Professional | Managing Partner, Thirty Advisory | jkelley@thirtyadvisory.com

In the first quarter of 2016 the IPO market showed a 39% drop in deal volume and a 70% decline in total capital raised compared to last year at the same time, according to EY.  However, as the IPO market has declined, the Mergers & Acquisitions (M&A) game has been heating up; so much so that in 2015 M&A spending was $3.8 trillion, with $1.9 trillion of that total happening in Q4 alone.

For example, the technology market has seen a significant decrease in IPOs in the technology sector in the past 14 years.  Jay Ritter at the University of Florida’s Warrington College of Business states that there were 3,132 initial public offerings of technology-related companies from 1995 to 2005 compared to 1,283 in the period from 2005 to 2015, a 59% decrease.  However, finance software firm Dealogic reports that in 2015 the global technology sector M&A volume reached $143.4 billion – a 30% increase from the $110.2 billion seen in 2014. Technology companies have high cash reserves and low debt that favorably contributes to the rising M&A volume, leading to estimates of technology hitting $300+ billion in 2016.

Regardless of the market your company is in, you may be thinking of acquiring a company or merging with one.  If so, in the pre-merger stage there are a lot of steps required to ensure the viability and success of the venture. You’ll almost certainly work with an investment banker, a broker, and a lawyer to develop and implement a due diligence list, perform market and financial evaluations and commission a host other tests including contract and regulatory oversight reviews, pending litigation research, and an insurance assessment.  In the post-merger period there is a whole new set of tasks designed to track the progress, integration and long-term viability of the venture. The importance of due diligence is particularly critical if one or both companies are privately held since little or no information is available through public sources.

Two critical, and often neglected, keys to likely success, whether pre or post-event, are the seamless integration and continued execution of the sales and technology functions. The annals of M&A history are littered with horror stories of inadequate buyer vetting and planning in sales and technology, leading to potentially disastrous outcomes. Sales missteps pre or post-event can easily lead to customer dissatisfaction and confusion, lost opportunities, and significant erosion in revenue and cash flow – all at a time when access to funds is vitally important. In technology, lack of synchronization of platform and software versioning, and the likelihood of competing incompatible infrastructures, or duplicative licensing commitments can bring a new entity to its knees and further stress already strained resources.

Coming soon:  best practices in sales and technology due diligence.

Somewhere along the way you realized that you built only half a company.  Not so long ago, you were the bright one in your class…maybe even got your MBA besides that tech degree. You have a great idea for a new product; found grants, partnered with a prestigious university, and built that bright new shiny thing that you are absolutely convinced the world will want.  In fact, you have a working pilot that you gave away to build some presence…maybe even you built it around a simple App.  You found some Angel money along the way, but your investors keep asking when are things going to “…get to scale?”  It’s just you and a couple guys and your dog.

What are you going to do?

It takes a different set of skills to envision the rest of the business cycle:  marketing, solutioning, selling, implementing—let alone building relationships, customer service, and product life-cycle management.  “Build-It-And-They-Will-Come” is right up there with “Hope Is Not A Strategy.”  What is generally considered the softer side of business is really difficult:  Selling.  Don’t look at it lightly.  All selling is not the same. You need a development and sales strategy to match the reality of what is out there in the real world—not what exists on the pages of a business plan.

General William Tecumseh Sherman during the Civil War, and the subsequent burning of Atlanta, said, “War is Hell.”  If you look at the man, you will instantly understand.  So too with business.  Business is Hell.  Be prepared to wage war.  Surround yourself, like the Generals, with strategic advisors—not just with cannonballs.  Dare to be different early in the life-cycle of your company.

You are spending money on your idea; but be sure to know how to feed your Beast.