Key Considerations in Cross-Border technology, media, and telecommunications (TMT) M&A transactions
The TMT (technology, media, and telecommunications) sector has enjoyed unprecedented growth over the past years and, despite the recent market volatility, the M&A appetite in technology companies in Europe from strategic, as well as financial buyers, remains strong. Especially sub-sectors like SaaS (Software as a Service), FinTech and IT-Services companies continue to attract investor interest and strategic buyers.
As market capitalizations and consumers’ and businesses’ growing appetite for technology products and services of the world’s biggest TMT companies like Apple, Alibaba Group, Alphabet (Google), Amazon, Cisco, Intel, Meta (Facebook), Microsoft, Salesforce, Samsung, Tencent, Tesla and NVIDIA remain high, their focus on acquisitions in their respective home markets and abroad continues to grow.
As nearly all the most valuable technology companies are either from the US or Asia, cross-border Mergers and Acquisitions, which are defined as M&A transactions between foreign companies and domestic firms in the target country, are particularly relevant from a European perspective. Along with the rise of importance towards global TMT companies and their development in market capitalization, the trend of increasing cross-border M&A has further accelerated. This trend in Europe is also fueled by the relatively low value of the Euro currency in comparison to other currencies, like the USD.
Selling a technology company is a complex process that offers many opportunities but also involves considerable risks. To successfully execute a technology cross-border M&A transaction and to achieve the optimal outcome for both the company and its shareholders, a couple of points need to be considered.
Choose the right project partners
The selection of the best project partners e.g., M&A advisor, accountant/tax advisor, and legal support is crucial in determining the successful outcome of the transaction. It is critical to engage with experienced M&A advisors, who can provide the company and its shareholders with competent support throughout the entire M&A process, while the company can continue to focus on the crucial day-to-day business.
Especially for mid-market Technology M&A transactions it is important to choose an advisor, who executes mid-market sell-side mandates with the same care, diligence and methodology as he or she would with the largest M&A transactions.
M&A project coordination
In the context of a technology M&A transaction, the various parties involved (shareholders, lawyers, auditors) must be coordinated in terms of content and time. This coordination effort is usually significantly underestimated and requires an experienced M&A advisor. An experienced project team should be installed to manage the timetable, internal and external responsibilities, and the communication strategy, all while maintaining dialogue with as many potentially relevant (internal) stakeholders as possible.
Preparation for the sale of the company
Preparatory measures should include a clear assessment of the company’s "exit-readiness". This usually involves a critical company analysis together with a careful market benchmarking and should include growth factors, margins, assets, competition and the M&A environment.
When getting the company ready for M&A it is highly important to develop an "equity story" focusing on the strengths of the company versus its competitors, to show that the company is a technology leader, innovation driver, or cost leader whilst simultaneously showing the future growth trajectory of the company. The creation of professional marketing documents and financial planning models are absolutely crucial in this process. The quality and degree of preparation of these project streams determine the later course of the transaction and maintain the momentum. They require a specialist advisor, who is familiar with the sector and the industry.
The basis for a valuation by investors must be laid in the preparation of the transaction and the aim of the sale must be clearly defined, together with a comprehensible justification of the intention to sell by the current shareholders.
There are many reasons for selling a company, such as when an entrepreneur has reached retirement age. It needs to be made clear that succession also offers an enormous opportunity for the future-proof positioning of the company.
Valuing a company means comparing it with the right competitors, and therefore can result in a wide range of estimating the enterprise value. It is therefore crucial to test different valuation methods (DCF, LBO, trading and transaction multiples etc.) and focus on the most relevant ones in the company’s sub-sector. Financial planning in the context of an M&A process is often ambitious, but it is highly recommended that the financial plan remains justifiable and defensible.
Finding the right partner in a structured market approach
In a typical technology M&A process, both financial investors and strategic investors are approached. Financial investors will have a clear time horizon for their commitment to the company. They often have limited involvement in the management of the company and will be primarily involved in supervisory and advisory functions. Financial acquirers normally focus on value creation by increasing earnings and the profitability of the company. They often buy companies to diversify their portfolio or to integrate an acquisition into an existing portfolio company in the form of an add-on transaction.
Strategic buyers are more interested in the long-term perspective and often aim to gain competitive advantages by the acquisition of the target. As they are still focused on value creation, they are normally highly engaged through active management of the company or the integration of the target company into its existing structures.
Overall, it is noteworthy that there are many value-enhancing factors to make a technology M&A transaction successful. One of the most critical factors is to find the right M&A project partner to help complete complex cross-border transactions. At CDI Global we are leaders in technology M&A, and we provide mergers and acquisition expertise to technology businesses and investors, helping our clients maximize value creation while navigating the ever-changing landscape of M&A.
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About CDI Global
Technology, Media and Telecommunications (TMT) Mergers and Acquisitions
The TMT industry sector continues to be the fastest growing and most active market for mergers and acquisitions worldwide. As the largest companies in the sector continue to dominate, more and more TMT companies are accumulating currency through stock growth to both diversify and fill gaps in their offering portfolios. High growth segments continue in artificial intelligence and machine learning, cloud services and software as a service, automotive technology, and the internet of things (IoT).
CDI Global has years of experience in transactional execution among its international team members in the Technology, Media and Telecommunications industries. We understand the niche markets and channels, as well as the key global regions, to find and secure the best possible opportunities. Our local presence, paired with cross border expertise, makes us an ideal partner for discovering and executing on TMT transactional opportunities.
By: Dr. Nicholas V. Hanser, Partner, Head of Technology Investment Banking