Mergers and acquisitions often present numerous challenges. Introducing technology into the picture, though, can create specific issues. A technology mergers & acquisitions advisor will encourage companies to be aware of these four potential concerns.
Intellectual Property Rights
Lots of technology businesses center on their IP rights. Consequently, significant value is often tied up in how defensible a firm's intellectual properties may or may not be. A technology M&A advisor will want to look closely at the patents, trademarks, and other claims involved in a deal.
Additionally, an acquiring party will want to examine IP in use. If a company depends on a licensed platform, for example, you need to know how much risk might be involved if the license owner pulls the plug on the product or raises the price.
Growth Models
Much of the attraction of acquiring a technology business is the possibility of capturing significant growth potential. How you model a company's expected growth will determine what you're willing to spend to acquire it. This can be challenging if the company has little to no revenue. Even if there is cash flow, though, you need to figure out what it might grow like over the coming years.
Discounting is very important. Remember, the typical tech firm isn't Coca-Cola, a business with more than a century of proven revenues through thick and thin economic times. The risk that the acquired property will implode should come with a sufficient discount to justify it.
National Security Laws and Technology Transfers
Numerous technologies are subject to laws limiting their transfers for national security reasons. Especially if you have overseas interests, you may need to be careful how you incorporate assets into your business. Otherwise, there is a risk that a piece of software could land in a prohibited place. A company can incur massive fines and endanger relationships with important government customers if it runs afoul of these regulations.
Talent
Incorporating talent into the newly constituted organization is important in most M&A scenarios. However, it can be critical when it comes to tech. If a technology is in its infancy, there may only be a handful of people in the world who know how to work with it. You want to know what the risk is that those folks will move on after the acquisition. Whenever possible, you'll want to see contracts in place that secure talent or at least impose non-disclosure and non-compete terms for a reasonable period if someone leaves.
Contact a technology M&A advisor to learn more.
