Timothy Goddard (cont’d)
Now to our special report, when you are approached, 13 tips to ensure deal success. To moderate this section, I would like to turn things over to Joel Espelien, Joel?
Special Report: 13 Tips to Ensure Deal Success When You Are Approached
Thanks, Tim. It's common in today's tech M&A market for companies to receive inbound offers from potential suitors. How you respond is critical. Here are a baker's dozen tips to help you respond to an unsolicited offer. We start with Bruce Milne.
Bruce Milne - Numbers
I'm going to start off this section by saying you first have to understand the numbers. What do we mean by that? Well, we want you to know your odds. Selling your company is the most important transaction of your life. It's about changing your life. So, it can be very exciting to be courted. You start dreaming about the future. But you need to understand the hard realities.
Let's take a look at the numbers. 11, 48, 75, 80, 100. What do these refer to? 11% is the number of buyer solicitations that actually result in a transaction. That's about one in 10. The problem is you may be one of the 90% that don't get done. You get all excited and start dreaming about the future. Put your company on hold. Be careful.
48% is the average improvement from the first offer to closing with an auction process. That's a lot, a lot of liquidity. You have to have an auction process.
75% of the time there is another firm willing to pay more than the first initial bidder. This is very consistent.
80% is the failure rate for self-managed tech M&A. You don't know what you don't know, and there are so many hoops to get through. Just due diligence alone can be overwhelming.
100% of deals involving only one bidder are sub-optimal. You never get optimal deals if you only have one bidder. Your price, your structure, your liabilities, no way. So you need to be sure you're not talking to just one buyer.
Thank you, Bruce. Now onto our panel of experts around the world, beginning in Europe with Julius Telaranta in Berlin.
Julius Telaranta - NDAs
Immediately before entering any merger discussions with a potential buyer, you should execute a non-disclosure agreement and possibly a non-solicitation agreement. You have to be careful to protect your technology, algorithms, and ideas, your secret sauce. The NDA helps protect you and your company by imparting a duty to keep information confidential and only use it for a specific purpose, in this case of evaluating an acquisition.
Don't be afraid to ask. It is expected and shows you are serious. It will typically cover financial information, intellectual property, as well as the fact you are in M&A discussions. You still need to be careful about when you discuss the most confidential data about your business. Only disclose to serious buyers at the appropriate time. On the other hand, we also caution strongly against being too restricted in providing confidential data. The buyer needs to evaluate your company. If you make it too difficult to get information to move along in the process they may lose interest or under-value your business. Let your advisors help you to strike the right balance.
Thanks, Julius. Now let's hear from Corum Group International managing director Jon Scott in Amsterdam, Jon?
Jon Scott – Bottom Feeders
There are buyers known as bottom feeders. These buyers repeatedly put offers on the table that are well below the value of the company they're trying to acquire. These acquirers have a pattern of paying the absolute lowest value for their acquisitions. Sometimes they're just being opportunistic and hoping they can hook you before you discover the true market value of your company, and other times they're so very poorly valued themselves due to weak performance or operating in a declining sector that they simply refuse to pay market prices. In either case, identify these bottom feeders quickly. They'll waste a lot of your time, and use tactics like saying, we'll walk away if you wanna speak to others or hire an advisor. It never turns out well for the seller.
This is a segment from Tech M&A Monthly: What to Do When You Are Approached (September) webcast. For more information, please visit Corum Group's Software M&A Webcast Archive.