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Attracting investors in a tech-led M&A boom

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Alex Duffy – Corporate Finance Director

The level of Merger and Acquisitions (M&A) activity is especially high within the tech sector, which attracts a variety of buyers spread over a wide range of industries.

This presents an opportunity for ambitious tech businesses operating in artificial intelligence (AI), blockchain, cloud computing and other fast-developing areas. But how can they maximise this opportunity, optimise their market valuation and attract a trade buyer?

Booming tech M&A

According to research, non-tech companies seeking to acquire next generation technology are responsible for around 48% of M&A activity in the UK and another 39% are interested in acquiring new digital capabilities.

Making the right impression from the start has never been more important. Due to the increased attention on the sector, products are no longer launched on the market before being properly tested as an attempt to attract investors. Today, tech businesses should introduce a fully tested product ready for market entry.

Digital innovation across various industries is one of the key factors responsible for the booming M&A activity within the tech sector. Many businesses wish to add value for customers by expanding their range of products and services or by establishing links with technology-rich companies. The demand for tech innovation is also on the rise, with original equipment manufacturers (OEMs) wanting to bring new solutions to the market sooner by acquiring tech companies.


It’s all in the preparation

Tech companies who are interested in realising value through a potential sale should ensure their financial management data, reports, accounts and sales figures are in order. For this information to be presented in the best possible light, it’s important to allow sufficient time (at least seven to nine months) to prepare.

Sales Pitch

A tailored sales pitch is essential to attract potential buyers. To understand their target market, it is wise to make use of the many on and offline platforms providing the latest technology news. Additionally, a strong business case will be needed in order to proceed. For example, there might be existing problems, such as low sales or a current product in need of refinement, of which the target business is aware. Therefore, sufficient research into this idea is essential to clearly present the case.

Besides being confident in the brand, having confidence in its management team is what makes a business even more attractive. To increase the chance of securing a deal, a strong growth story is key. Potential buyers are more likely to invest into a business when significant improvements, such as new product lines and blooming partnerships, have been and are continuously made.

Unique Selling Points

Being aware of their unique selling points is important if a business wants to stand out from the crowd. In order to familiarise themselves with these points, an assessment is needed, including how much traction it has secured in the market, how it plans to differentiate itself and what possible competitors there might be. Protecting ideas with the right intellectual property (IP) rights is also essential in this environment where innovation and technology are growing at an exceptional rate. When meeting certain conditions, IPs such as trade mark registrations and patents can be shown as an intangible asset on the balance sheet, which may increase investors’ interest.

Tax Relief

Tax relief schemes such as the Enterprise Investment Scheme (EIS) appeal to numerous investors currently on the market, ready to invest in a growing tech business in exchange for an equity stake. To fully understand the company’s value, explore available development options, as well as avoid potential pitfalls, consulting a third-party adviser is recommended. Getting the right expert advice is vital to ensure all appropriate corporate documents are in order before going to the market and to apply best practice if it comes to compliance and governance.

Risk Areas

Additionally, mitigation strategies should be put in place for potential risk areas such as, over or undervaluing the company, underestimating the competition or distributing too much equity. Another pitfall to be aware of, is not specifically targeting the right type of investor for the business.

Past the deal

No to be neglected, is the post-deal integration process. Before sealing any deals, the culture and values of the buyer’s business should be assessed as to whether these compliment the firm. To guarantee the success of a merged company, good collaboration between management teams is vital. It is advisable to have a settling-in period, allowing for an open and honest discussion to ensure all parties are satisfied and potential issues can be dealt with sooner rather than later.

Conclusion

Companies in this extremely merger-and-acquisition-targeted industry should enhance their position in order to maximise their chances of attracting a buyer, which will eventually allow the business to continue its growth journey. Seeking the right expert advice to help put in place a detailed plan well ahead of going to market, allows for business value to increase, finding the right buyer and taking full advantage of the tech sector’s M&A boom.

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Posted in Blog, Technology

Alexander Duffy

Director

For further information on how to attract an investor please contact Alex Duffy our corporate finance director