Three ways tech founders can position themselves for deal success

For the right buyer, your business may represent their next market differentiator or greater resilience.

If you’re in the technology space, you know the pandemic accelerated the sector in game-changing ways. Consumer attitudes and expectations have completely transformed in Canada and beyond — particularly around the digital home.

In terms of deal activity, 2021 saw some of the busiest quarters in recent memory. Strategic groups have recognized that acquiring the right tech capabilities can speed up their own digital transformation and improve their ability to serve customers. At the same time, financial investors have increased their exposure to the tech sector given the dramatic pace of digitization across industries. Many financial investors — including family offices — who’ve typically shied away from the tech sector now see the broad-based impact of technology businesses and have become active investors in the sector. All this change is happening as non-tech companies continue to acquire tech businesses to bolster their digital posture.

As public market valuations continue to rise, we expect companies to look at several avenues to bolster growth. Acquiring a new capability creates opportunities to cross-sell solutions into a target’s user base and vice versa. In addition to growth, acquirers are also keen to empower internal teams to work or learn remotely and enable customers to enjoy a seamless, omnichannel experience.

What does that mean for founders in Canada considering a sale of their business? Your tech company may very well be more attractive to a diverse group of buyers — across tech, non-tech and financial buyer groups — who are increasingly interested in the sector. For the right buyer, your business may represent their next market differentiator or greater resilience. You need to navigate this environment strategically to make the very most of the opportunities taking shape. 

What should you keep top of mind? 

• Add credibility to the process at every stage of the game. Too often, we see founders taking the first call they get and moving headlong into a transaction. In our experience, the first offer is often not the best offer. Inbound interest is a clear validation of your potential. Even so, the right deal must validate your potential and your value. Bolster your efforts by getting fresh eyes around the table to help position your business in the best possible light and drive robust conversations. Upfront preparation and running a professionally managed process adds credibility to the transaction and puts potential acquirers on notice that you’re serious about reaching a beneficial agreement.
• Don’t be afraid to make it clear there’s competition. Buyers should never feel like you don’t have other options. That’s counterintuitive. If you’re approached, take the time you need to consider what other options you might have. Getting a broad view of the market can help you tap into other networks and relationships that could unearth additional possibilities. You want to go into any possible transaction with a clear and rich understanding of what else is happening around you, what alternatives exist and what strategies you can deploy to explore these alternatives without alienating the buyer already at the table. Running a competitive process or making it appear that’s the case: that’s how you can get into a position where whatever deal you pursue is a deal that meets your objectives. 
• Leave emotion behind. Transactions can be emotionally draining. We’re talking about the pricing and structuring of a deal for a business that’s succeeded thanks to years of hard work, and entrepreneurial drive. In many cases, deal discussions are just the first step in a longer-term relationship. You could be negotiating with someone who you’ll report to in the future, if your business is integrated into a larger entity. On the flip side, the buyers may be wondering how to bring your business into their fold without hampering your ability to continue innovating post deal. What’s more, private equity firms will evaluate your business along entirely different lines than strategic buyers. All this can raise emotions at a time when negotiating well means doing so without getting bogged down in how the situation feels. Utilizing advisors strategically can help you disconnect the emotion from the process and can be a good way to dial down some of those feelings and dial up your strategy around the deal itself. That tends to fuel better results for all involved. 

It’s fair to say the factors that are fostering so much activity – and so many opportunities – across the tech sector are unlikely to subside any time soon. Thinking ahead about what that means for the business you’ve worked so hard to build opens you up to a host of possibilities. However you approach this environment, factoring in credibility and the right optics while filtering out emotion can take your deal from good to great.