When buying a company, you need an advisor — Sampford Advisors - Expert Tech M&A Advisor (Software, IT Services, SaaS, Hardware)

I know this blog post is going to sound a little self-serving (it is a bit) but bear with me while I make the case for having an advisor when you are buying a company.

Firstly, let us start discussing the genesis for this post - Canadian technology companies are becoming increasingly active in buying other tech companies. There has been some pretty high-profile deals recently including OpenText’s $1.4bn acquisition of Carbonite, Blackberry’s $1.4bn acquisition of Cylance and Telus’ $720mn acquisition of ADT Canada. There’s also been acquisitions by some relatively new buyers including Shopify’s acquisition of 6 River and Kinaxis’ acquisition of Rubikloud.

And we at Sampford have been increasingly busy representing buyers too – we just advised Martello on its acquisition of GSX and are currently working on two other buysides for Canadian companies. However, some buyers that don’t have sufficient internal M&A resources are buying companies without using an advisor - and we think that many are over-paying as a result!

You can see the rise of Canadian buyers more clearly in figure 1 below, which shows the number of completed deals by year for Canadian acquirers of tech companies.

Figure 1 – The Rise of Canadian M&A by Technology Companies

But Figure 1 on its own is a little distorted, because technology M&A activity has been increasing across the board over the last few years. So, to adjust for a rising market, the chart below shows the percentage of transactions completed by Canadian buyers. While this was flat for the first few years of the period, the last 2-3 years has seen a dramatic increase – increasing from 6.4% of deals in 2010 to 9.9% in 2019 – a 55% increase!

Figure 2 - % of North American Tech Deals by Canadian Acquirers

The deals are also getting bigger which is also encouraging and shows that Canada’s tech companies are beginning to compete with their brethren south of the border. This can be seen more clearly in Figure 3 below.

Figure 3 – Top 5 deals by Canadian Acquirers (2019 – Present)

Let us now turn to the reason for this blog. I obviously knew the value an advisor brings on the buyside having worked on numerous buyside transactions over the last 25 years. But does the data quantify this? As you can see from the chart below, deals have an average revenue multiple of 3.6x without an advisor, and 3.1x if they do. To put that in context, if a buyer without an advisor is paying $50m for a business, they are picking up $13.8m in revenue on average. The buyer with an advisor would pay $42m for the same asset – a 15%+ discount over the buyer without an advisor. And to be honest, I think the gap is bigger than that having seen the results we have achieved for our clients.

Figure 4 – Valuation differential between deals with buyside advisers and those without

One complaint we hear against hiring a buyside advisor quite frequently is that we are expensive. And when you look at it purely in the context of the dollars paid, it can seem that way. However, buyside advisory fees are obviously significantly less than the 15% price savings outlined above. This plus the fact the an M&A advisor will do all the heavy lifting for you so you can focus on your business (and an effective integration strategy) makes hiring a banker to help you on the buyside an absolute no-brainer.

About Sampford Advisors

Sampford Advisors is a boutique investment bank exclusively focused on mid-market mergers and acquisitions (M&A) for technology, media and telecom (TMT) companies. We have offices in Toronto, Ottawa and Austin, TX and have done more Canadian mid-market tech M&A transactions than any other adviser.