Introduction

Bruce Milne

Good day to you and welcome to our Global Tech M&A Report. I’m Bruce Milne, CEO of the Corum Group, your sponsor. On our agenda today we have our research report followed by our themed report, Twelve Tips for M&A Negotiation.

Before I start, let me first give you an overview of what is happening. We just had a record-breaking quarter last quarter. We’re seeing that August is just unbelievable, as you’ll see from our report. Tech M&A is very strong. The reason: Disruptive trends; strategic imperatives to buy. Cash: Nearly $4T available. Low cost debt: Not only from leveraged buyouts from PE firms, but also for the strategic buyers. Lots and lots of new buyers, both in tech and non-tech. Very strong financial markets. Remember that tech M&A follows the financial markets. And then one that we just added: Megadeal disruption. We’ll be explaining that later.

Pre-Emptive Offers: Don't be Fooled

Since this theme is about negotiation, I wanted to relay that we’re seeing record unsolicited interest. People are calling and saying, “We just got an inbound interest in our company, we’re excited about it, can you help us negotiate this?” We’ll be talking about that today.

But there are  a couple of problems here. What kind of interest? A lot of this kind of interest is from what we call the second tier strategics or tertiary PE firms that may not follow through, or they’re very frontloaded in terms of expenses, backloaded in terms of interest. Bottom feeders and what we call pre-emptive buyers.

Now, often these firms are trying to lock you up. They often demand exclusive negotiations. They don’t want you talking to others, they want to pay less than true value. And remember your fiduciary obligation, you do not want to be dealing with only one buyer. You do not want to have a minority shareholder say, “You just sold the firm, I think we could have gotten more; who else did you talk to?” In this day and age, that is not a conversation you want to have.

So here are some tech M&A guidelines. What are these numbers? 11, 48, 75, 80, and 100.

11: Percent of buyer solicitations that result in transactions. Only about one in nine times when a buyer reaches out to you does it result in a transaction. So here you, your wife is spending money on a deal she thinks is done… be careful there. Only one in nine makes it.

48: Average percent of improvement from first offer within the option process. These deals improve dramatically if you have other bidders.

75: Three-quarters of the time there is another firm willing to pay more than the initial first bidder. We’ve learned over thirty years that this is a standard that keeps repeating itself, year after year.

80: This is the percent that represents the failure rate on self-managed tech M&A deals. You don’t know what you don’t know, and this is complicated. The due diligence mine field is amazing. It will take you out.

100: This percent represents deals involving only one bidder with sub-optimal results. I have never—in thirty one years—seen what I consider an optimal value without involving other bidders for leverage.

Remember, selling your tech company is the most important transaction of your life. The bulk of your family or partner’s wealth is involved. It deserves the same due diligence you put into building your company. Never just respond to the first interest. Leverage it. Use it. Achieve an optimal outcome with a global partner search.

As a reference, August has been amazing. We are seeing extraordinary activity, as you’ll see in the research report, so we have added some additional conferences.