Tech M&A in 2017: the continued rise of the non-techie buyer

January 4, 2017

 

It's safe to say there's a fair bit of uncertainty in the world right now. Look at every analyst's prediction for 2017, and they don't have a clue; not in politics (thanks Mr Trump), not in sport (thanks Leicester City), not even in business (thanks Chinese debt bubble/China-US trade war/Mr Trump again).

 

There is though an island of certainty, or as near as we can get, and that's in tech.

 

I predict that 2017 will see non-tech companies continue to splurge on tech firms.

 

Last year spending by non-techies on start-ups doubled, to $10bn (says the WSJ). Big deals were everywhere, like Unilever spending $1bn on Dollar Shave Club, and GM acquiring self-driving tech company Cruise, also for $1bn.

 

When you understand why, it makes sense. All these big old companies are worried about the future. Not only do Boards see young upstarts coming to disrupt their industries (taxis, Uber, etc), they can't find easy areas for grow anymore; tech offers the chance to reach into a new area (hence Wal-Mart buying Jet.com for $3.3bn).

 

And, well, tech is sexy, and shareholders (some, anyway) love sexy.

 

 

So expect to see many an entrepreneur cashing out to the big boys over the coming year. Plus the not so big boys too: here at SI Partners we've had many a call recently from non-techies wanting a piece of the tech action, but not exactly sure how to go about it.

 

But before you Founders start spending your cheques, it's important to know that selling to what are often called 'strategic investors' is not always plain sailing.

 

For a start, non-tech buyers can find it difficult to understand tech valuations, which are often inflated thanks to industry buzz, despite valuations generally coming down in recent months. You might find yourself receiving an offer below what you think you're worth, or even what you were worth at your last financing.

 

Second, the due diligence can take a long time, as large companies can be very formulaic and lumbering in their target assessments. Does you have the patience, or the cash?

 

Third, there are the earn-outs. Most deals will be done with a period of earn-out, which could be as much as five years. Are you willing to wait that long?

 

Fourth, fitting in. Sell your company to the large multinational and you’ll probably find yourself in an environment very different to the one you cultivated at your start-up, surrounded by people you probably wanted to get away from in the first place. Are you happy with that, especially if your earn-out is long?

 

But at the end of the day, whilst there are pitfalls to selling to non-tech firms, it is an exit and a chance for you as the Founder to take money off the table. Of course, you could IPO, but that is a whole different ball game, and a much more painful one too…

 

 

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