Exits – Unicorns and Everyone Else

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Exits – Unicorns and Everyone Else

2015 is nearly done and we thought we would review some of the M&A stats that we collect in the tech sector.

With two weeks to go, in 2015 in the UK and Ireland there have been:

  • 16 Unicorn sized (>£661m) exits;
  • 55 exits over £100m;
  • 51 deals less than £100m but greater than £20m, and
  • 322 sale transactions less than £20m.

Attracting buyers and getting the right price for large companies like Airwave Solutions, King Digital, Telecity, etc. is considerably easier than for small tech companies when trying to arrange an exit for their shareholders. Often these smaller companies have to manage the sale process with few resources, “thin” stories to pitch, and small audiences of potential purchasers. Frequently triggered by a single unsolicited insubstantial approach or a fatigued shareholder, companies find themselves reluctant participants in a rush to an exit.

When we are asked by companies to advise on a sale, before we get started we recommend that they give some thought the following 6 questions:

  • Why now?  Is this the right time to sell?If not, what are the risks and returns of delaying? What will we say to buyers when they ask?
  • Who is selling?  Do all the shareholders want to sell? Can they agree a target price? Do management want to exit too? Who will sign warranties?
  • What are we selling?  Is the business prepared for the sale? Are all key contracts (eg customers, assets, employees, etc.) in place? Does the sales pipeline support the financial forecasts? Are their any key liabilities including lease commitments? Is the IP secured? Are there any change of control issues?
  • When are we selling?  Should the sale be targeted to complete close to a year end? Is there a key event around which a sale can be structured? Is there a sufficient cash runway to complete a sale?
  • Who will buy the business?  Has the business had any approaches to date? Who would management prefer as buyers? Why would they want to buy us? Have we access to key decision makers in the buyers?
  • Are we ready?  Do management have time to organise the sake while running the business? Do we have a selling document (eg Information Memorandum, Pitch Deck, Business plan, etc.)? Do we have clear, reliable detailed financial information? Have we prepared a dataroom with all key information on the company available electronically? Have we considered management incentives? What is our (external and internal) PR plan if there is a leak?

There are of course many other questions to add to these, but if management have answers to at least some of these matters then a sale might actually happen – but may be not at price equal to a horse with a horn!

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