Preparing for a Successful M&A Exit
Software companies looking to be acquired must understand today's acquirers and what they now look for in a target company.
By Scott Munro, Pagemill Partners
Oct. 16, 2006
Google's $1.6 billion acquisition of YouTube sprang to life during breakfast at Denny's just a few short weeks ago - or so the story goes. For this and many other reasons, the YouTube deal is really the exception rather than the rule of M&A today.
There is an old saying: a product well bought is half sold. The most successful software acquisitions are those which are carefully crafted well in advance. Understanding today's M&A landscape and the new standards involved will help emerging companies ensure a strong exit.
Consolidation Continues
The trend which started at the end of the dotcom bubble shows no sign of abating: Software consolidation continues at a rapid pace. The latest data from Thomson Financial shows that the value of software M&A for the first three quarters of 2006 matched that of all of 2005.
The result? A rapidly dwindling number of public enterprise software companies to act as buyers or serve as targets. According to industry figures, the number of public software companies has dropped from more than 350 in 2000 to less than 150 today.
This has created a new and growing category of buyers. Financial buyers have dramatically increased their appetite for acquiring larger private companies or taking smaller public companies private and using them as a platform for additional acquisitions. The result is that technology leveraged buyouts (LBOs) have also hit a record level.
At the same time, software venture funding has remained healthy
at approximately $1 billion per quarter New startups seeking liquidity events continue to hit the market but the likely outcome will be that the liquidity event will come as a result of an M&A transaction.
The virtually non-existent software IPO market coupled with a still healthy selection of private mid-size and startup vendors means software M&A activity will not slow anytime soon. In addition, larger companies are augmenting their product offerings by acquisition and taking advantage of their global sales and marketing footprint.
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There is an old saying: a product well bought is half sold. The most successful software acquisitions are those which are carefully crafted well in advance. Understanding today's M&A landscape and the new standards involved will help emerging companies ensure a strong exit.
Consolidation Continues
The trend which started at the end of the dotcom bubble shows no sign of abating: Software consolidation continues at a rapid pace. The latest data from Thomson Financial shows that the value of software M&A for the first three quarters of 2006 matched that of all of 2005.
The result? A rapidly dwindling number of public enterprise software companies to act as buyers or serve as targets. According to industry figures, the number of public software companies has dropped from more than 350 in 2000 to less than 150 today.
This has created a new and growing category of buyers. Financial buyers have dramatically increased their appetite for acquiring larger private companies or taking smaller public companies private and using them as a platform for additional acquisitions. The result is that technology leveraged buyouts (LBOs) have also hit a record level.
At the same time, software venture funding has remained healthy
at approximately $1 billion per quarter New startups seeking liquidity events continue to hit the market but the likely outcome will be that the liquidity event will come as a result of an M&A transaction.
The virtually non-existent software IPO market coupled with a still healthy selection of private mid-size and startup vendors means software M&A activity will not slow anytime soon. In addition, larger companies are augmenting their product offerings by acquisition and taking advantage of their global sales and marketing footprint.
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