We do not have to look any further than the US stock market to be reminded that windows of opportunity open and close with dramatic differences in outcomes. It depends on what side of the window you were looking through, too, trying to get out at a high value or get in at any value. While “timing the market” may be a fool’s game, it's frightening to see that timing can occasionally trump fundamentals.
This is the busiest tech M&A market we have seen at Corum since 1999, early 2000. So the window of opportunity is certainly… currently… open for exploration if you are a tech CEO/board of privately held software or services company.
We can’t claim to time the market in this case either, but we certainly can bring a few irrefutable truths into the current wave.
First, in tech, unlike other businesses, very few fast growth software and services companies wind up being multi-generational. In our research, maybe 1% or less, so at some point 99% have to identify possibilities for future partnership. Better to explore the market with a healthy tailwind than a crosswind or a fierce headwind.
Second, even with the active tech IPO market and the intoxicating 73% first-day rise of Twitter (for those who owned it) we know that fewer than 1% of tech businesses will in fact go public, which means 99% of us are going to have to explore other growth & exit options at some point.
And the last two that used to keep me up at night as an operating CEO:
- What are the chances of a disruptive technology negatively affecting your market or growth prospects In the next 1-3 years and where will it come from? Is it a 50/50 proposition?
- What are the chances of your own disruptive technology or secret sauce prevailing in your segment for the next 5 years? What is the expected life of your current product/solution without major expense & renovation?
Our key thought here is − given today’s M&A tailwind, exploring your growth & exit options for the future in a strong market can be a win-win proposition. There is a high probability you will get some valuable feedback in the process and perhaps a stunning result.
Waiting or exploring options in a soft or distracted market will often produce less feedback, fewer data points and perhaps far less exciting outcomes.
We believe the strong M&A markets for well-run tech companies will certainly continue for a while … but riding the strong market unabated all the way into Thanksgiving 2014? We’ll see.