What Makes for a Good Technology Acquisition?

By Ron Pullar October 16th, 2020

The global situation has catapulted businesses ahead of their normal technology evolution. Nearly every company has embraced a future of remote work. Schools transitioned to distance learning. Online commerce and delivery became lifelines for millions of people around the world stuck in their homes. Those who had delayed investments in technology had their hands forced to ramp up quickly. And while this presented a challenge for many, it also presents a unique opportunity to acquire technology companies and software – but how can you move ahead with confidence if you’re considering this option?

An excellent place to start is understanding what makes for stable technology acquisition. In my opinion, it begins with top-tier management— a quality leadership team with a positivity culture and getting things done drives or stalls a deal. Since acquisitions can be looked at in several ways; a financial snapshot, growth projections, or customer base, understanding who is at the helm and how they have driven the growth thus far cannot be underestimated. Second to management and especially when looking at software as a service (SaaS), the recurring revenue model is next on the list. The track record and ability to reduce the subscriber base’s churn and build that clients’ revenue commitment can mean good stability from the start.

With this foundation of understanding, it will be interesting to see if there is more technology acquisition over the next year. Over the next six months, a new tale will start to unfold, both from the perspective of the world regaining some normalcy, but also with the impending presidential election in the USA. Historically, the M&A market follows suit with the stock market and has shown us that in an election year comes some resettling from a tax perspective. Those same business owners looking to sell today may face a drastic haircut come January 2021. However, there is still a driving force behind motivated sellers right now to at least dip a toe into the water to get market value and then assess the risk.

From the strategic buyer’s side, there is also motivation. Any M&A inquiries that had not begun their process before March were essentially placed on hold, and those that were in the process continued and played out accordingly. Because of the pause, buyers are now anxious to close deals before the end of the year to retain – at a minimum – the same budget in 2021. No one knows when we’ll return to business as usual but looking at the specifics of how 2020 is ending and what’s on the horizon for 2021, there’s plenty of optimistic activity to go on.

For owners in the technology sector looking to capitalize on this optimism, preparation is vital to set yourself up for success. Strategic buyers are moving swiftly, and should they not find what they like within the first few engagements, they can quickly become disenchanted and move on. Ensuring you are gaining the maximum value when selling leaves no stone unturned when it comes to preparation. Have all your financials laid out and have projections as accurate as possible. Technology companies that are the most attractive in the M&A marketspace are the ones that have shown they are nimble amidst the global pandemic and continue to drive top-line revenue. Businesses that weren’t as agile will find themselves climbing a steep hill to remain resilient and positioned as relevant. Also, don’t discount working with an advisor who understands your sector and the process and how to position your organization.

To summarize, with a more substantial openness than in the past towards a buy vs. build model, strategic buyers are looking for companies that fit their acquisition goals of driving top-line revenue and developing new revenue streams. Buyers are certainly not frivolous, but with those businesses who have positioned themselves as agile and adaptable, they are extremely driven to make up for the pause earlier in the year. While we have yet to see what impacts will come from the impending election, the opportunity for both buyers and sellers is abundant.

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