Mergers and Acquisitions: All Set, Jump Aboard …Hmm not so fast!
By Joanne Kelley, Certified M&A Professional | Managing Partner, Thirty Advisory | [email protected]
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.