How do you make the most of a technology M&A? Plenty of pre-deal planning


20 Dec 2018244 Views

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With acquisitions of Irish tech companies on the rise, William Fry’s legal experts outline the essential steps for a successful M&A.

As the pace of technological innovation quickens, mergers and acquisitions (M&As) can provide a good solution for accelerating product roadmaps, gaining access to new technologies and markets, and fending off competitors from both inside and outside one’s industry.

This strategy is especially evident in the technology, media and telecommunications (TMT) sector which, in 2017, recorded an all-time high of 3,389 M&A transactions globally, worth a total of $498.2bn. Closer to home, Ireland’s TMT sector continues to attract global interest, and has become the global technology hub of choice when it comes to attracting the strategic business activities of ICT companies.

Ireland has the second-highest concentration of ICT multinationals in the world, second only to Silicon Valley. This is according to William Fry’s Mid-year M&A Review 2018, which found that Irish TMT saw a clear increase in its share in overall Irish M&A volume year on year, now accounting for 20pc of overall activity.

Two broad types of transaction are common across the TMT sector:

  • The acquisition of larger, established firms who have become significant players in their own right
  • Smaller deals focused on growing or start-up firms who remain sub-scale from an international viewpoint but bring a specialism or intellectual property (IP) which is unique

‘Ireland has the second-highest concentration of ICT multinationals in the world, second only to Silicon Valley’

From an acquirer’s perspective, deals involving acquisitions of large, well-funded, established companies can yield big dividends, but they present unique challenges when it comes to integration. Success depends on selecting the right strategy for allowing the target to continue its development post-acquisition.

The acquired company may find it difficult to continue to drive the factors which resulted in its high valuation (potentially growth and innovation) under the business model and processes of the new owner. Addressing how the target is to be integrated within the company at an early stage in the deal (and from the seller’s viewpoint, ensuring that this is known and acceptable) will help with potential ‘deal issues’ later on.

IP and talent deals

In most ‘IP and talent’ deals, a smaller business or start-up is targeted to acquire its technology, its people (usually engineering), or both. The acquirer assimilates those assets and the start-up often subsequently ceases to exist. Commonly, IP and talent deals are driven by the need to move quickly – either to get ahead of rivals or to catch up with them.

The current gold rush around cognitive computing is a perfect example. Globally, companies spent $21bn to acquire cognitive computing firms in 2017. However, IP and talent acquisitions present two major challenges to the acquirer and, as a result, to the owner or shareholder of the to-be-acquired business in ensuring that their company will represent an attractive target.

First, ensuring that the acquired assets become – and remain – relevant and a priority across the acquirer’s business. Second, retaining key talent who may initially take a negative view of their new company’s processes and leadership.

How to maximise success

Too often, IP and talent acquisitions suffer from inadequate merger integration planning and execution. In these cases, critical details aren’t effectively communicated upfront to all of the teams required to make the deal a success. When these organisations aren’t incentivised to pay attention to the acquired assets, or the acquired company fails to land its key USPs with business unit leaders, those assets can ‘wither on the vine’.

For IP and talent acquisitions to maximise value, company leadership must ensure that the acquired assets remain a priority, and that key stakeholders are held accountable – for up to two to three years, if necessary. Then there is the additional challenge of retaining talented employees (usually engineers) who now find themselves in a larger company that may differ significantly from their previous firm. Complicating matters is the fact that the acquired start-up’s leadership team may no longer be part of the new organisation, or may find themselves in lesser roles.

How can acquiring companies continue to fuel the passion of their new employees? Effective communication is typically the answer, from both the acquirer management and the target’s CEO.

Leading employees and inspiring them with the new vision and career path that the acquisition can present, and articulating how the target is going to facilitate in meeting the acquirer’s strategic goals, is key. This should be built into the acquisition/disposal process and effected at the right time to maximise the chances of deal success.

For more information, check out the William Fry briefing published in partnership with Deloitte, Technology M&A: The Importance of Pre-deal Planning.

By Shane O’Donnell, Stephen Keogh and Carol Eager

Shane O’Donnell is head of William Fry’s Corporate department, in which Stephen Keogh is a partner and Carol Eager is an associate. O’Donnell has been involved in a number of significant acquisitions on behalf of Irish and international clients, and Keogh specialises in transactional corporate work with a particular emphasis on private equity transactions.

A version of this article originally appeared on the William Fry blog.