The rise of tech M&A and how to valuate your business
This has been a big year for technology mergers and acquisitions all over the world, reports TechCrunch writer Andreas Penna, with deals ranging from "small acqui-hires" to large corporate takeovers making news on a weekly — if not daily — basis.
This sudden, significant increase in the number of tech industry M&A is partially attributable to the ubiquity of mobile technology and the cloud computing that accompanies it. Some companies that previously specialized in technology dependent on local servers are looking to expand their mobile and cloud-compatible offerings.
Additionally, high stock prices, talent acquisition and increased revenue are factors in the recent M&A boom, Penna reports.
"Big tech companies are in an all-out spring to snap up relevant companies, especially when it comes to IP and user base acquisitions."
The numbers don't lie. Over the last year, Google has struck 36 M&A deals, followed closely by Yahoo's 24, Apple's 15, Facebook's nine, and Microsoft and Twitter's eight and seven, respectively.
Though tech M&A deals have become somewhat commonplace, "many companies seem to be painfully unaware of the critical variables in the valuation equation," Penna, a venture capital advisor, asserts. He recommends valuating your business by adding a company's acqui-hire value, return of investor capital and premium.
Acqui-hire value is calculated by estimating each acquired employee's total compensation over four to five years. This number should be combined with the amount that investors will be paid back, as well as the value of patents, positive cash flow and competitive disadvantage, which Penna explains is the act of "removing a target from potential competitor acquisition."
If you are considering selling your business, contact an M&A advisor to ensure you strike a fair and lucrative deal with your company's acquirer.