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:
- Concur Technologies by AmEx
- Informatica and TIBCO by SAP
- Limelight Networks by Akamai
- McAfee by HP
- Red Hat and athenahealth by Oracle
- Rightnow Technologies by Salesforce.com
- Salesforce.com by SAP or Google
So what should CEOs of smaller technology companies who want to grow shareholder value do? At a minimum, three things:
- Understand who your most likely acquirers are and keep the list up-to-date.
- Ensure that your company stays focused on activities that increase your attractiveness to those acquirers.
- 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.