Despite the war in Ukraine, accelerating inflation and increasing interest rates, the technology sector has still seen M&A happening in the United States. In the first half of 2022, large tech M&A transactions included Microsoft acquiring Activision Blizzard for $69 billion, Google buying Mandiant for $5.4 billion, and Elon Musk bidding for Twitter for $44 billion.
Private equity was also active in the tech sector, with Thoma Bravo purchasing SailPoint for $6.9 billion and Vista Equity Partners acquiring Citrix for $13 billion. Cross-border tech M&A included Deutsche Telekom’s acquisition deal with SoftBank Group and T-Mobile U.S. for $2.4 billion and Siemens acquiring Brightly Software for $1.8 billion.
European and Asian companies can compete effectively against both U.S. companies and private equity by offering greater target management responsibility post-transaction, flexible transaction structures and global distribution of the target’s products sold with the acquirer’s sales team. By understanding the key issues in cross-border tech M&A, an international acquirer can close a successful transaction and achieve its commercial objectives in the United States.
Management teams, boards and shareholders have had time to adjust to the drop in valuations and will be more amenable to an acquisition at a reasonable price.
Prior to approaching targets, it is important to establish detailed acquisition criteria.
Acquisition criteria can include the subsector, product set, revenue, profitability and customer profile. It should also include more intangible aspects, such as vision, culture and strategy. Management team strength is also important, particularly if the international acquirer is following the private equity playbook and acquiring a platform company with the intention of acquiring smaller add-on companies later. Finally, practical criteria should be considered, such as geographical location — if the international acquirer is in Paris, a flight to the East Coast is much shorter than a flight to California.
Once the acquisition criteria are established, in-depth target research is required. This research should include target financing, capital structure, leadership and industry reputation. Research should include databases such as Capital IQ, PitchBook and Crunchbase, as well as confidential discussions with industry leaders at other companies in the subsector and industry trade groups. This industry insider knowledge can be very powerful.