The technology sector presents special challenges for measuring transaction success. Often, intellectual property (IP) is the primary driver of acquisitions - the goal being to maximize value creation from pushing the acquired IP through the purchaser’s product lines, sales force and distribution channels.
The more successful the acquirer is at doing this, the more difficult it is to ascertain the precise value of the new IP.
The time before the profit impact is seen can be long. For example, even if elements of acquired technology are successful and lead to short-term impressive design wins after close, it might be some time before the design actually starts to generate revenues.
Alternatively, if an element of functionality is acquired that enhances an internet service (e.g., a search functionality), it may be difficult to financially identify the value of that new functionality.
Opportunities for improvement
Past experience shows that to get a fuller picture of transaction success, it is useful to add additional measures of success to the baseline metrics of cost synergies, revenue enhancements and retention. These can vary greatly by deal - design wins may be important or may not be relevant.
Other measures used include:
- Changes in customer satisfaction
- Survey ratings by key participants of the deal success
- Share of usage in the case of an internet service
- Achieving key integration milestones that show the deal is on track - even if it has not flowed through yet to the financial results