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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.

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.

What Consumers Really Want

What do you want? I know what I want…a fair deal. Yes, a fair deal when I go to the supermarket, or buy my gas for the car, or pay for a service. And I want to be treated with a little respect and honesty. So much time and money and psychology go into the dynamics and understanding of the consumer. Consumers are not so hard to figure out. Just look at what consumes their time…video games, Amazon, Twitter, Instagram, Facebook. We are quickly developing into a society that cannot exist without our mobility. And when you want to reach out to these people, well, the answer is kind of simple…isn’t it? The days of hanging signs like STOREWIDE SALE 30% OFF LOWEST TICKET PRICE in the windows are long gone.

Even in the world of Information technology, increasingly CIOs are turning to their teams and asking, “…what’s available via open source…?” Collectively, we all look for ways to trim our budgets and at the same time achieve instant gratification for acquiring something new. Never mind how long the application is actually used, or the gratification lasts. We want it, and want it now.

Devices have rapidly changed the way humans interact. Computing is an afterthought. We want our On-Demand-Tech…and want it now!

Think about it. Where did all the color televisions go?

BIG MACs & TOP TEN LISTS

A leading industry newsletter put out their top ten list of predictions for the utility industry. In no particular order these are:

Regulators and utilities will (continue to) reform business models.
States will lead the clean energy transition.
Federal policy uncertainty is likely to persist.
Utilities continue to push rate design reform.
Distributed Energy Resources proliferation is forcing utility adaptation and policy fights.
Energy storage is maturing into a viable grid-scale resource.
Organized markets are in flux — and nuclear plants are at risk.
Renewables are at grid parity and will continue to grow.
Natural gas growth will continue and could even accelerate.
Coal power could get a second lease on life.

Change takes time—particularly in the utility industry. The industry itself causes the slow churn toward innovation, but rightfully so…utilities have to deal with governments, lobbyists, state regulators, federal regulators, citizen groups, activists, analysts, Wall Street and most importantly…shareholders. The industry is invisible to the consumer—until the lights go out. Unlike other industries, Utilities are the original “Just-In-Time” format. You know right away whether the lights are on or not. Utilities take their fiduciary responsibility very seriously. Equally so, they take their duty as a Public Servant very seriously. When you really think about it, in times of tragic storms, do the unregulated suppliers to your local utility send trucks and people into the community to help during and after a natural disaster? Nope. It’s your local utility: the guys and gals who climb up those poles to fix downed wires, the executives and engineers and sales people and executive assistants who staff emergency outreach centers.

Yes, the list presents BIG issues facing the industry…but like all things, the industry will get through it. Think about generation: nuclear, fossil, wind, solar, hydro, etc. In other countries where base load supply (nuclear and fossil) was shut down completely and who are now dependent on alternative generation (wind, solar, bio-mass, etc.) who is ultimately paying for that? Then take a look at their tax structures for the individual citizen.

When it comes to the list above, a little bit of everything is a good thing. It’s kind of like what you eat. If you only eat processed, fast foods and drink sugary drinks, well, your health will be at risk. BUT, if you balance your diet (and yes, that can even include a Big Mac or two), then your system will be balanced. All things in moderation.

Think about it. What can we do, or better yet, what do we want the industry to bring to us to enable all to have an equal share of this ecosystem?