Global demand continues to drive strong M&A activity in the Technology sector – practical advice

Despite fears that the COVID-19 pandemic would result in a downturn in M&A activity, global investment in technology businesses has more than doubled since 2020. In the first half of 2021, technology investment reached €70 billion (owing largely to increased investor appetite across Europe). By quarter 3 of 2021, the technology sector constituted 21% of all M&A activity (being an increase from 16% in 2020).

This upwards trend is likely to continue throughout 2023 and beyond as technologies such as artificial intelligence (AI), the internet of things (IOT) and cloud-based computing have disrupted a wide range of traditional industries including healthcare, automotive, banking and advertising. This leads to “tech convergence”, bringing two previously unrelated industries together, and often creating new distinct industries. For example, the FinTech, PropTech and HealthTech industries have been created through “tech convergence”.

If you are thinking about taking advantage of the buoyant market to either exit or pursue further investment, we have compiled a list of the key considerations that you may wish to think about to make the process as painless as possible.

IP rights

For most tech businesses, intellectual property (IP) rights and patents are key assets. Ensuring that all of your company’s IP rights are properly registered is a vital step not only for a sale but for protecting your business’s value in any event. If your business has multiple IP rights, keeping a schedule of these assets (and any licences you have provided to third parties) will be useful as potential buyers will likely ask for these lists during their due diligence into your business.

Data privacy

Given the introduction of the GDPR more than a few years ago, it is essential that your tech business is fully GDPR-compliant and in particular, has records of its data processing and controlling activities.

Equity

There are a number of key considerations when deciding whether to accept investment into your business from external investors. One such consideration is whether your company’s articles of association and/or shareholders’ agreement contains suitable drag along rights to prevent a situation whereby minority shareholders could potentially block or restrict an investment (or full exit). It is also essential to ensure that your company’s statutory registers are kept up-to-date and accurate. Please see our separate article in respect of the importance of keeping your company’s statutory registers up to date: https://www.ts-p.co.uk/news/why-are-statutory-registers-so-important .

Housekeeping

Start considering the questions that potential buyers will ask during a due diligence exercise. Ensure your key contracts are indexed and copies available; ensure your company’s policies are stored centrally and kept up-to-date; maintain accurate employee records and information in respect of your company’s pension scheme, etc. If your business owns property, ensure your leases and any regulatory consents, certificates and/or permits are up-to-date.

Confidentiality

Keep information of any plans to sell on a need-to-know basis. Rumours circulating amongst staff will do little to maintain a healthy team spirit and could see productivity drop across your workforce as fear of possible job cuts sets in. Wait until you have a clear plan before engaging your employees to ensure the information you give is clear and accurate.

Seek advice early

Engaging advisers early on in the sale process can help avoid unexpected roadblocks further down the line. Legal and financial advisers can ensure that you are in the best position for a smooth sale process before approaching the market.

If you would like to discuss the above, please contact Jason Varney (jason.varney@ts-p.co.uk). Additionally, please keep an eye on our website and social media channels as we are running a series of tech-related insights throughout 2023.