09 Mar 10 Buy-Side Strategies for Tech M&A and Cybersecurity Deals
Maximizing the value of tech and cybersecurity M&A deals requires a lot more than luck and a well-run company. Your business’s M&A strategy is critical to its success, and the earlier in the process you implement an effective strategy, the more likely you are to reap the full benefits of a transaction. While M&A transactions can be time-consuming and stressful, their effectiveness ultimately boils down to 10 simple principles:
- Build your due diligence team before you begin shopping for an acquisition. The right team can help you pre-screen companies and avoid significant wasted time and resources. Your team can also work with you to define success and develop a list of attributes in your ideal acquisition.
- Define success. You need clear and specific goals to determine your M&A strategy. And you have no way of knowing if you’ve achieved these goals if you don’t define them ahead of time.
- Look at growth potential. Hope is not a business strategy. Growth potential is about specific areas where a company can earn more, do more, or offer more. Assess for growth potential with each business you consider purchasing.
- Assess the quality of the team. Acquiring a business is ultimately about acquiring its people. Are they up to the task of operating the company when the owner leaves? Or will you have to shed significant dead weight?
- Consider your own sale plan for the business. The ultimate measure of a company’s success is how easily you can sell it. So consider the investment period, and the dividends this company is likely to yield over what period of time.
- Assess cultural fit. Cultural mismatch is a major contributor to integration failure. When the two companies continue to feel like separate entities—or worse, adversaries—the new company is doomed to failure.
- Look behind the numbers. It’s important to assess what’s happening behind seller forecasts and financials. Is a sudden increase in cash really from a PPP loan or holding off on expenses that are needed to run the business? Are the forecasts supported by data such as a sales pipeline based on a proven methodology, or based on little more than a dream?
- Get clear about working capital. A key source of controversy in most deals is working capital. Outline clear terms well in advance of closing. Set specific benchmarks that can be objectively measured.
- Build an integration team led by a skilled project manager. Integration is a project unto itself that requires every bit as much expertise as closing. Hire or assign a project manager who can oversee representatives from both businesses on an integration team that has a clear mandate and the power to carry out all the tasks of integration.
- Do your own due diligence. What will a seller discover when they research you? Do you have the resources and expertise necessary to make a deal succeed? Evaluating your company, and your plans, with the same critical spirit an outsider would apply can help you ensure you’re not taking on too much, and that you truly have the ability to shepherd the deal to completion.