M&A in 2013: Where are we?

PWC 1Q13 M_ATiming is everything, in mergers & acquisitions as well as life.  2012 saw technology deal volume and values plummet by twenty percent[1], versus a decline of ten percent[2] worldwide.  The decline has been attributed to the tepid economic recovery, uncertainty brought on by U.S. presidential election, as well as the worldwide political instability, from Afghanistan to Greek to North Korea.

It’s hard to believe that such macro trends can impact your relatively small company in such a dramatic fashion, but believe.  The smaller the company, the closer you are to a concept of idea as opposed to a profitable business, the more difficult the task.

It’s always mystified me as to why small company transactions, particularly in technology, fare so relatively poorly in down economic times.  You’d think that with these depressed prices, a smart buyer would snap up these companies at their bargain prices.  However, most of the time, the company is not salable at any price.  Fear and uncertainty rule.

Emotions dominate as opposed to vision and wisdom.  The potential buyer says “Why should I buy ABC at the same price as XYZ when XYZ is a proven entity?”  The answer is, of course, future values.  XYZ Company has probably already seen its highest growth; ABC Company, earlier in the product cycle, should see multiples of growth in value.  Two words:  Risk : Reward.  But in rough economic times, buyers flee from risk, forsaking the reward.

We believe that in 2013 M&A will rebound somewhat.  Large companies have been using M&A in place of R&D.  No matter what the economy does, technology, trends and markets don’t stand still.  Getting yourself into a position of playing catch up is a dangerous game.  Think of Digital Equipment and IBM.  IBM was able to save itself, Digital could not.

What can you do?  If you want to sell your company, get ready.  Make sure your systems are in order, particularly financial.  Take the time to do any upgrades that are important to demonstrate your savvy and sophistication.  Think about the story you want to tell to a buyer.  How are you going to position your company?  Start writing a sales memorandum.  There’s no better way to get your head in order, as your mindset is what it’s all about.

What is your experience?  Have you tried to sell you company in a downturn?  What are your recommendations?

[1] PWC US technology M&A insights, February 2013

[2] The Guardian,April 2, 2013