Understanding Your Exit Options: Identifying Potential Tech Acquirers Part 1

If you have been following my blog over the last several weeks, you will recall that I wrote a series of blog posts to help start-up companies with designing effective company exit strategies. This series of posts is titled “Understanding Your Exit Options,” as it is intended to teach start-up companies how to plan their exit strategies early on in their adventure, so they do not overly complicate or block exit opportunities along the way with IT, cultural, product compatibility and product positioning decisions.

In this week’s blog post, I will explain how to identify potential acquirers in your market and understand what they are looking for.

To design an effective company exit strategy, a company must:

1. Evaluate the current tech acquisition market activity and trends.
2. Identify the most active acquirers in their sector.
3. Examine why each acquirer is in the M&A market and identify their IT and cultural requirements.
4. Create a list of companies that would potentially be interested in your company based on their needs and requirements.

In the remainder of this post and next week’s post, I will walk you through an example of how this is done.

Evaluate the current tech acquisition market activity and trends:
The tech acquisition market was slow during this past recession and did not start picking up speed until last year. Within the last year the tech acquisition market was able to recover back to its pre-recession level, but still remains significantly lower than it was during the mid-90s and late-90s tech booms. Over the last year, we saw significant growth in the SaaS/ASP, E-Content, E-Marketing & Search and E-Commerce sub-sectors of the tech industry. The greatest growth took place in the SaaS/ASP sub-sector.

The buyers remain heavily concentrated in North America. In fact, only 26% of acquirers had their primary operations outside of North America, and most of these companies were targeting North American-based companies as well.

Identify the most active acquirers in their sector:

Over the last decade, the tech M&A market has been dominated by a small group of companies, namely IBM, Cisco, Microsoft, HP and Google. All of these companies have consummated large and small merger and acquisition deals during the last decade and all have been active on the market for the last few years. However, in that same time period, Google and Apple have definitely increased their presence in the acquisition market.

The distribution of deals amongst the leading tech M&A suitors has been overwhelmingly balanced towards North American deals. In fact, 73.8% of these deals were with North American companies.

The make-up of the leading tech acquirers has changed considerably over the last few years of the decade. In the last 2 years, Google and Facebook have moved up the tech acquirer ranks. Twitter and Amazon have also made a late splash in the market and look to become bigger players in the market in the years to come. Microsoft and EMC² have decreased their buying pace over the last few years and focused on larger purchases.  In Microsoft’s case, the Yahoo! search deal consumed most of their acquisition resources for 2009 and 2010. EMC² also dedicated a large percentage of their expansion capital to deals with Ipsilon and Data Domain during the last 2 years. Yahoo! and AOL maintain active presences in the tech acquisition market, but their expansion capital may be thinning due to poor performances in recent years, so their involvement in the acquisition market will likely slow down in the future.

The overall tech market activity also seems to be trending upward as there were 2 large transaction spikes in 2010 between April and May and August and September. These increases in deals were both led by Google.

Next Week’s Post: 

In next week’s blog post, I will examine some of the key acquirers in the tech acquisition market. Specifically, I will focus on recent technology interests and cultural focuses, which will offer information to help your company competitively position itself for an exit.