Earlier this month, we posted the first instalment in our two-part series summarizing Deloitte's Technology M&A Report which outlines the top ten considerations for tech and other companies to keep in mind when using M&A to fuel development and growth. Our earlier post considered the top 5 issues identified by Deloitte, and this post will consider the remaining issues in order to round-out the top ten:
- M&A to drive business transformation;
- divestitures;
- talent management;
- cyber-security; and
- rules and regulations.
M&A to drive business transformation
Driving business transformation through M&A is pervasive in the tech market. Hardware companies are expanding into the software market, licence-model companies are acquiring cloud-based offerings, and everyone is buying up IP and talent. As the report puts it, when the question is "buy versus build", the answer is typically "buy", even for companies who are investing in R&D.
In Part I of this series, we stressed how companies should not underestimate the difficulties inherent in merging two entities, each with its own culture, sales model, and management structure. Instead, companies should take extra pains to ensure customers experience a seamless transition and the positive culture they have created at their company remains intact. Some may even want to consider setting up the acquired company as a separate business unit, integrating it only in the back-end (email, document management, etc.) and leaving the newly acquired sales, service and engineering departments independent of the existing front-end structures.
Divestitures
The growing and maturing tech company may look to divestiture of a peripheral or underperforming product as a means of renewing focus and raising capital. To heighten the value received from a divestiture, tech companies should be as thorough in their preparation to sell as they are in their preparation to buy.
Talent management
This section is of particular interest to those companies looking to acquire developers and engineers. While many tech companies retain the "campus culture" of Google or Facebook, many others have moved to a more virtual, distributed model. Though flexible and creative models may assist companies in retaining people and knowledge, they can also create challenges where mutual trust and clear performance expectations are not also present. Companies should encourage their managers and leaders to be flexible, innovative and assertive in order to ensure that value is realized from talent acquisitions.
Cyber-security
Ongoing cyber threats to sensitive business and consumer information are having a significant effect on the tech market. Companies are now acknowledging that their existing "perimeter security" is insufficient to protect their data. As a result, spending on IT security is forecasted to increase nearly 10% from 2012 to 2016. Additionally, the number of companies and individuals servicing this market is on the rise and they have become attractive targets for existing companies looking to expand their capabilities and offerings.
Rules and regulations
Though M&A levels are robust and even on the rise, some transactions are being delayed or disallowed by regulatory hurdles. This is particularly true for large transformational deals and cross-border M&A. When dealing with merger notification requirements, accounting standards integration or conflict mineral audits, companies would do well to engage local expertise. In all cases, regulatory considerations should become part and parcel of the due diligence process.
The author would like to thank Jad Debs, articling student, for his assistance in preparing this legal update.
Norton Rose Fulbright Canada LLP
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