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Technology CFOs Look at how to Get the Deal Done

by David Sordello

Deal volume in the U.S. M&A market continues to rise in 2011 with across the board volume up 16.4% through May on a rolling 12-month basis. Similarly, aggregate M&A spending was $91.2 billion in May, the second-highest level in the previous 16 months.

These indicators are the reason that M&A is on the minds of so many Bay Area executives. With business confidence improving and a pickup in the IPO market indicating good capital access, M&A should continue to be a leading story through the end of the year.On May 25th, over 100 technology industry CFOs from across the Bay Area gathered at the Four Seasons in Palo Alto for a Technology Mergers & Acquisitions Summit titled “Getting the Deal Done.” Hosted by Armanino, the event featured panel discussions on becoming an attractive acquisition target, lessons learned from the trenches, and the hidden pitfalls of technology M&A. The panels featured industry-leading CFOs, corporate development professionals and venture capitalists, as well as legal and financial advisors. 

They had clear advice for sellers and buyers alike.

For the seller:

  • A potential seller must take control of when it is time to sell – have a plan and don’t let unexpected factors or outside parties make the decision for you.
  • Buyers pay for growth, not profitability – sell when you are on the steepest part of your growth curve.
  • Good corporate housekeeping, especially related to IP, can help minimize the enormous distraction of selling or raising capital, and even with that, don’t take it on lightly.
  • The sales process will take much longer than you think, so run the business as you would regardless of the sales process; avoid short-sighted inflation.
  • Having an effective offshore IP structure can be a plus for a potential acquirer.

For the buyer:

  • Looking at things that are not on the top of the list (e.g., for companies with international operations, look at compliance with Foreign Corrupt Practices Act).
  • There is typically nowhere near enough diligence done on the sales pipeline; one recommendation is to meet with mid-level salespeople to assess the quality of the pipeline – they will be the first to disown it, and they will help you understand the difficulties in their sales channels.
  • When time is of the essence, “buy” over “build” is a good strategy, particularly if the company does not have the precise experience needed – the risks are the same either way, and the “buy” can be quicker, more effective, and less distracting.
  • From an integration perspective, a dedicated, properly incentivized and accountable executive sponsor, supported by a clear vision and goals, timely decision-making, and a huge dose of communication is the most important factor for success.

“Bringing together this group of CFOs and transaction experts is one of the ways we connect technology finance leaders to the people, trends, and best practices critical to their business success,” said David Sordello, co-leader of Armanino’s technology practice.

July 01, 2011

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