snIP/ITs Insights on Canadian Technology and Intellectual Property Law

Tips for Tech Companies Looking to Be Acquired

Posted in M&A/Finance

In the organised chaos of running a business, many issues naturally get overlooked until an acquisition is on the table. Stopping for a moment in the early stages to think through deal strategy, due diligence and the acquirer’s needs, saves costs and gets the deal closed. At a recent McCarthy Tétrault seminar, “Are You Ready to be Acquired“, the speakers offered the following tips to tech companies contemplating a sale - to better ensure that the acquisition process runs smoothly:

  1. Obtain current market information so you can gauge financial buyer and/or strategic buyer interest in your market, sector or industry and offer an attractive opportunity.
  2. Choose advisors that match your transaction. Find advisors with the right style, creativity, experience and ability to navigate your transaction (all the way through to close).
  3. Build a Team. Selling a business is not a one person job.
  4. Understand your cap table for alignment of shareholder interests and make sure that there are appropriate exit mechanisms in place with shareholders (e.g. drag rights that work as advertised).
  5. Parse the buyer’s Letter of Intent (LOI) for the buyer’s hot buttons and must haves.
  6. Be able to demonstrate protection of trade secrets, including having a record of NDAs to evidence that no core technology has been improperly disclosed.
  7. Listen to the buyer, be responsive and align with the buyer’s process. If you can’t solve the buyer’s problem, it will get solved for you by the buyer reducing the purchase price or walking away.
  8. Identify and develop a strategy to deal with customer contracts with onerous post-close obligations or that involve the customer in the deal process (e.g. release of source code on change of control unless customer provides prior consent).
  9. Assemble documents for the data site early. Be ready for the inevitable requests and beware of unintended disclosures on follow-up requests.
  10. Start disclosure schedules early, after the first draft of the purchase agreement, and follow the buyer’s guidance.
  11. Pay attention to the escrow. Focus on amount, length of time, claim mechanism and location.
  12. Find an internal champion in the buyer organization, someone who is invested and tied to your success. Align yourself with him or her throughout and following the transaction.