Technology M&A Is Accelerating

A few days ago, I posted links to interesting articles in an exit strategy update. Indications are that the next 12-18 months  will produce an increase in the acquisition of technology companies, so having an exit strategy in place and aligning with potential acquirers remains top of mind for CEOs. Let’s review some of the evidence.

One significant indicator is that tech companies have started using debt to raise capital. A recent WSJ article said that “the decision to take on debt breaks from tradition in tech, where companies have typically preferred to raise money by selling stock. Debt has become a more attractive fundraising option largely because interest rates are low… Turning to debt is an especially big change for software companies, which typically generate lots of cash and aren’t saddled with large one-time expenses like opening a factory.”

While the focus of the article was on the largest companies like Cisco, Microsoft, H-P, Oracle Corp., International Business Machines Corp., and Dell Inc. who raised more than $20 billion combined in 2009 selling bonds, smaller companies are following suit. Salesforce.com’s $575M debt offering and Adobe’s of $1.5B, both in January, mean that the acquisition drive is broadening.

Yesterday StreetInsider.com quoted an FBR Capital Markets report that “software vendors are flush with cash given the cashflow-rich nature of the software model and more than a handful of vendors have even recently raised additional capital.” The FBR Capital report even suggested some likely acquisitions:

So what should CEOs of smaller technology companies who want to grow shareholder value do? At a minimum, three things:

  1. Understand who your most likely acquirers are and keep the list up-to-date.
  2. Ensure that your company stays focused on activities that increase your attractiveness to those acquirers.
  3. Create partnerships with potential acquirers and other companies who make your company more compelling to those acquirers.

Whether you want to be acquired in the short term or the long term, your company’s value is in the eye of the beholder, and the most important beholders are acquirers.

About Bob Barker
Bob Barker is a trusted advisor to CEOs, helping them identify, define, and execute new growth-accelerating opportunities. He also shares ideas on LinkedIn (robertgbarker), in guest posts on related blogs, and in industry publications. Contact him via email at bob@2020outlook.com.

Comments

2 Responses to “Technology M&A Is Accelerating”
  1. Pete Hayes says:

    Bob,

    Nice write-up. I’m curious about the kinds of activities CEO’s might be needing to pay attention to, to keep their companies attractive. Is that business as usual (keep top line growing, and margins stable or improving)? Should they have specific communications efforts that accommodate potential acquirers as targets for unique messaging? Should they be looking at their C-staff and assessing the attractiveness? Or does that get left to the “next team” to enhance or consolidate? Overall, I’d be interested in your opinion of the role of various functional areas of the business. Does marketing, for example, have a key role in preparing a company for an acquisition exit? Are there short-term activities that are warranted, or longer-term hygienic behaviors?

    Pete
    CMO
    Chief Outsiders

  2. Bob Barker says:

    Great questions, and the easy right answer is “all of the above.”

    With respect to the role of marketing in the 20/20 process, begin with a clear understanding of your company’s positioning: what kind of company are we? do we belong to a well-known category? what’s the primary benefit we deliver? who are our primary competitors and what makes us stand out?

    If these questions have already been answered, the 20/20 process moves along much faster. Knowing who you are and having that messaging already in place helps every part of the business.