The global uncertainty precipitated by the double shock of the Brexit vote and the election of Donald J Trump to US President, have, so far, not resulted in any detrimental effects in small and mid-market M&A activity within the software technology sector.
As is common in many technology sectors, the vast majority of the deals taking place are in the small and mid-market size. This is particularly true of the software tech sector because there is a sharp decline in the number of companies as revenues increase. At Boss Equity, we typically find that many of the larger players are looking to acquire companies with revenues above $30M. It is above this size that there are proportionately fewer companies.
Global M&A Activity to Continue Despite Political Uncertainty
From the M&A activity witnessed throughout 2016, it seemly likely that M&A deals will continue apace throughout 2017. Indeed, Q4 2016 saw global deal making increase by 50% year on year - Thomson Reuters Going forward, companies with surplus cash will take advantage of their less fortunate competitors, who are likely to struggle if the financial rain arrives, drowning out profitable growth. Whatever the political climate, whilst there are ambitious, cash rich companies and companies that want, or need, to sell, M&A activity will continue. Consequently, despite some gloomy economic forecasts, we should not anticipate a major downturn in M&A activity.
Continued Convergence Driving Acquisitions
Another driver for continued acquisition activity is the continued convergence and consolidation of technology. Increasing numbers of vendors seek to increase the technical capability of their solutions and thus the clear sub-divisions of the recent past become blurred. What were once clear technical differentiations or offerings, are now less obvious as other USP factors come into play in addition to simple software features.
Plan Your M&A Strategy to Avoid Pitfalls
Some business leaders may stare at the horizon, anticipating a soaking from the potential oncoming economic rain. Others will understand that there are opportunities to be had for those companies that are prepared and willing to do some M&A strategic planning and thus avoid the typical pitfalls that frustrate so many acquiring companies.
In many instances, a lack of M&A readiness is not due to a lack of experience, as that can easily be drafted in, rather, it can be attributed to an inability to accept that the skills required to grow revenues for the company or read a balance sheet do not necessarily translate into making successful acquisitions. In general, companies show an incredible lack of motivation to plan ahead when seeking growth through acquisition.
Opportunities for those Who Are “M&A Ready”
When seeking to grow, a company will often encounter opportunities which may require swift decision-making and action. This doesn’t mean that business owners should rush at full pelt into deals, unprepared and in a gung-ho manner. It simply highlights the need for forethought and planning. Your plan should include a template of "right" fit companies to acquire. This is in stark contrast to attempting to shoehorn into your M&A strategy any random opportunity that lands on your desk, simply because it happens to be a competitor or is from a closely related technology sector.
Plan Meticulously for M&A Success
A carefully constructed M&A strategic plan, incorporating a success based profile/s can be used to smooth the acquisition process and allow senior executives to make faster decisions, increase acquisition success, minimise risk to the company and, in many cases, to their own career.
Unfortunately, a high percentage of companies are not sufficiently meticulous in their planning. Even though creating an M&A plan will positively impact their chances of M&A success, many companies in the software technology sector fail to plan and, as a consequence, plan to fail.
High Rates of M&A Failure
Planning carefully for a successful M&A outcome makes good sense when viewed against a backdrop of 75% M&A failure. Some will refuse to plan, out of a misplaced sense of over-confidence, or even a degree of arrogance. Most of the latter have no former knowledge or experience of M&A and sadly, the results of their M&A deals often reflect this. They will have missed out on the real opportunity offered by M&A - to ensure the deal is successfully completed and that they can then leverage the benefits.
Despite excellent opportunities in the small and mid-sized market, with the above attitudes proliferating, many acquisitions will not deliver as hoped and the trend towards high failure rates will continue. In spite of this, it is anticipated that the number of acquisitions will not drop significantly, if at all.
Stop, Think, Plan & Prepare for Your Successful M&A Outcome
Despite the alarming headlines about M&A failure rates, success is achievable for those who are willing to stop, THINK, plan and prepare. In a fast-paced industry, when monthly and quarterly revenue and profit figures need to be achieved, stopping is far from being an instinctive reaction. However, in order to get the best out of your M&A strategy and make the right acquisitions, a plan needs to be created. Taking the time to do this will minimise your risk and will result in innovation and productivity benefits which can be leveraged to generate long term revenue and profits.
