Jacob Mullins, the CEO and Founder of Exitround, an acquisition marketplace for buyers, expounded on the state of mergers and acquisitions in the technology sector and in Asia in his keynote speech at Echelon 2014 in Singapore today. Among the key topics he covered in his speech were the Asian M&A scene, as well as advice on preparing and optimising M&A-related activities.
The past year has seen some of the largest acquisitions in M&A history, with the acquisition of ExactTarget by Salesforce for US$2.5 billion, NEST by Google for US$3.2 billion and Whatsapp’s acquisition by Facebook for US$19 billion, the largest acquisition deal in history. With regard to these, Mullins noted that each presented a strong benefit to the buyer.
For Salesforce, ExactTarget presented dominance. For Google, NEST presented an opportunity. For Facebook, Whatsapp represented engagement. Each was complementary to their core business operations and competencies. Many acquisitions were done in order to augment diminished research and development efforts, given a gradual exit from a global recession.
However, such mega-deals compose less than one per cent of all global deals, with 88 per cent of deals valued below US$100 million. In 2013, software accounted for 35 per cent of all M&A activity, with a total value of US$188 billion, a 65 per cent increase from 2012. Deals involving companies in the internet, IT services and hardware sectors are increasing, in both number and value. For the first half of 2014, tracking indicated a 41 per cent increase over 2013, with Ernst & Young predicting a stellar performance for 2014, commenting that: “Tech M&A to ‘strong’ at worst, ‘blockbuster’ at best”.
Asian technology M&A Asia’s technology M&A scene is seeing strong growth. For Q1 2014, M&A value was US$102 billion, a 36 per cent increase over 2013. Technology, Media and Telecommunications (TMT) saw an increase of 53 per cent from the previous year, while inbound M&A deals from outside of Asia are at the highest levels seen, with outbound US M&A deals valued at US$169 billion for year-to-date, their highest levels ever. Technology-related M&A deals were also twice the number they were in 2013, seeing a 100 per cent increase.
Summarising the current state of the M&A sector as of June 2014, Mullins noted that there were strong buyer incentives in the current M&A market, with buyers having sufficient cash to put to use, as there was US$823 billion available to the top 25 technology companies. He stated that with the internet marketshare growth slowing, top-line growth was achieved through horizontal expansion.
He predicted that the next growth area was going to be mobile, with a migration of IT services, infrastructure and business to cloud computing services. Cloud computing alone saw an increase from US$59 billion in 2009 to US$149 billion as of June 2014.
He also noted that there was a characteristic pattern to companies being acquired, with common characteristics being that they:
disrupted market conventions
lead the markets in terms of mindshare
engaged their users extensively
had rapid growth rates, though not necessarily being the largest amongst their competitors.
M&A tips and tricks Mullin’s advice on preparing for M&A activities was to start building relationships with partners, competitors as well as bankers and M&A firms, in order to establish a broad network and create greater opportunities.
He advised finding a “champion”, often an internal business lead who is not just involved in the corporate development, and to build trust with them. This saves time in the future when negotiating deals, lowering the barriers to initiate a deal.
For managing a successful M&A deal for both parties, he stressed on the need to prepare for a swift conclusion of the deal, with corporate documentations ready to share with all the relevant parties, and also employee IP assignments and contracts, up-to-date financial documents, and patents. He also advised that conversations should be front-loaded, in terms of expectations and objectives, as well as a timeline should be maintained for the opportunity.
For those being acquired, he recommended developing a long-term mutual vision with the buyer, with a pitch deck and a story prepared for the presentation. Knowledge of what your own objectives and outcomes is also important in proceeding with the M&A process. Protecting the interests of your team, and shielding them from all irrelevant processes is also important.
For buyers, his advice was to be prepared to investigate the company, reviewing their term sheets, contracts and other records, as well as subjecting them to intense due diligence. Preparation for integration of the company into a wider business entity is also necessary, due to the merger between two different brands and organisational cultures.