According to the Global M&A Report, Refinitiv 2021, "US$698.7 billion worth of deals were announced globally during the first two months of 2021, 56% more than the same period last year and a year-to-date total only exceeded twice in recent history (in the years 2000 and 2018)." According to the same report, "[t]ech has been the leading M&A sector since August 2020. Technology deals total US$157.7 billion in the first two months of 2021, the highest year-to-date total of all time, up 173% from last year. Technology deals account for 23% of global M&A by value in the first two months of 2021, up from 13% in YTD 2020, and the highest share of all-time."
These global figures and statistics are also indicative of the trend of the increasing number of high value M&A transactions in the technology sector in Thailand and the region, with this year seeing the record-breaking SPAC transaction listing of the largest-ever U.S. equity offering by a Southeast Asian tech company (with significant operations in Thailand) and the emergence of tech "unicorns" in Thailand.
But all the attractive headlines aside, what makes a tech acquisition really successful? With increasing pressure from both inside and outside the board room for executives to make every acquisition a "bang for one's buck," executives looking to do M&A in the tech space are faced with the tough question of how to capture and realize real value in the acquisition of a tech company.
What some companies have done well when approaching a tech acquisition is to focus on the capabilities and "brains" of the target, rather than simply viewing it as an asset to acquire. This means understanding the capabilities and impact of key personnel. Accordingly, identifying any key personnel that is critical for the successful operation of the target business becomes important during the due diligence. The essential know-hows or trade secrets of the business may be in the head of only a few key personnel. The main reason to acquire certain tech companies may even be to acquire the talent of the founders or certain key personnel. In that case, the acquirer may want to consider putting in place an arrangement to retain these personnel with the business. The acquirers may also want to explore engaging in "acqui-hires" instead where the key focus of the acquisition is to acquire the personnel of the target company.
Any potential acquirers may need to step back and re-think the value of the technology and whether it is what the acquirer really needs. Acquirers are sometimes prone to put too much emphasis on the technology behind the business - with this often being one of the main reasons why the acquisition was initiated in the first place. Therefore, it would be important to understand the value of that technology, its future applicability and prospects and, for certain acquirers that are looking to integrate that technology into its existing technology, system, supply chain or facilities, the impact of integrating that technology to that of its own.
Last, but not least, we cannot gloss over the real value proposition behind the business and the legal regime in which it operates. With the business or value proposition of many tech companies, especially startups, characterized by the disruption of the business and activities of incumbents, often times these tech companies may have some business activities that may be in the area where the laws or regulations of the jurisdiction have not caught up with yet. It is important to understand the current status of the laws and regulations and their implications on the target's business and the direction that the relevant legal framework is moving towards with respect to that business in order to fully evaluate the value and risks associated with the target company.
Whether you are looking to acquire a tech company to integrate into your existing business or to invest in a tech company for future growth and profits, conducting effective, value focused due diligence will be one of the key factors which will help you to understand and realize the value of the tech company to be acquired.