Obtaining Maximum Value for Your Company in Today’s M&A Market

6/30/10

At the end of 2009, we were optimistic that the M&A markets would pick up and become the key near-term source of liquidity for investors before any real momentum in the IPO and capital markets kicked in. We also believed the technology sector, led by reemerging growth and profitability, would be at the forefront of the deal flow. And finally, we envisioned a good M&A ecosystem, with sellers motivated by the need for exits and buyers in search of much-needed new products, innovation, and revenue growth.

But our fairly positive stance for the technology sector was tempered by caution, given the cloud of uncertainty surrounding the economy and its fragile recovery. So, as we approach the middle of 2010, are we sticking to our guns?

The short answer is yes. But acquirers and investors are still wary, and they’re doing much more diligence before closing deals. They’re also more partnership-focused—that is, they view an acquisition as the continuation or initiation of a partnership with the former management or founders of the purchased company. Thus, their diligence expands beyond the traditional financial or technology variables.

The current consolidation trends will continue, and as a result it’s critical for sellers to understand how to demonstrate and maximize their value in the eyes of the consolidators. So what should those who are positioning themselves for liquidity do to improve their prospects? Based on our insight and conversations with key industry leaders, here’s our best counsel on the subject:

· Focus on building value. Create value in your products, for your customers, and in your underlying industry segment. Value will always be recognized and rewarded. This means you can’t set out to be bought or sold; you need to focus on the core business and establish value through your product in order to achieve strategic and financial success.

· Understand where your company, technology, or service sits in the overall ecosystem of your segment. Know who all the players are, how you match up, who your competitors are, and where you provide value. By understanding your ecosystem, you’ll be better able to guide your company and your product or service toward true value creation. You’ll also learn how you fit into current consolidation trends and, ideally, gain insight on how acquirers view your company from the outside. In many cases, this can differ from your internal viewpoint.

· Stay close to your strategic partners. Form close relationships with strategic customers, resellers, and industry leaders—but don’t get so close that you lose competitiveness or independence. When you develop these relationships, a host of potential acquirers is only a phone call away, and they already understand your value proposition. Be sure not to sign exclusivity agreements, … Next Page »

Taft Kortus is a partner in the technology and life sciences group at Moss Adams, an accounting and consulting firm based in Seattle. Follow @

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