How Tech Executives Are Managing M&A Inbounds (Part 2 of 2)

Introduction

Last month, we presented the results from a poll conducted by the Sampford team at the annual Peerscale retreat. The full blog showcasing the results can found here.

In this second entry, we will dive deeper into the poll results and extract additional insights, demonstrating what the current relational landscape looks like between tech executives, and inbound M&A inquiries.

M&A Inbounds: A Competitive Landscape

The first insight to take away from this poll is the abundance of inbounds that tech executives are receiving, along with the portion of which are not being engaged with. According to the poll, ~64% of the respondents are receiving at least 3 inbounds per month, and ~18% are getting over 10 inbounds on a monthly basis. This means that new inbounds will typically have substantial competition to deal with, putting immense emphasis on assembling engaging messages that differentiate themselves from the numerous other interested parties.   

Moreover, the second question tightens the funnel even further, with 50% of the executives responding to inbounds, and half of that group specifying that the inbound must be interesting in order to provoke a response. However, the poll also uncovers the advantage that strategic buyers have in this process.  

The Strategic Edge

The responses to the third question indicate a distinct interest in strategic buyers. Whereas a private equity inbound may be a part of a wider search, a strategic buyer implies a history of domain expertise, and will be easily recognizable by the receiving executive. The recipient of the inbound will most likely be quite familiar with the strategic buyer through their experience and network and will be able to diagnose the situation in a much more proficient manner as opposed to an inbound from a financial background. 

However, for financial players, domain expertise presents a clear path towards successful inbounds. Showcasing industry knowledge, an understanding of the targets company, as well as having done relevant M&A in the space are traits that are well received by executives. Among these categories, relevant M&A activity is the most sought after. Completing an M&A transaction is a rigorous process, and doing so within a particular vertical implies that a firm has done extensive research and due diligence, therefore legitimizing their domain expertise.

Nevertheless, the poll results outline a clear path to a successful inbound, and can be the start of building a relationship, which will ultimately be the key towards successfully carrying out partnerships and transactions.

Relationship Building

While not explicitly focused on within the poll, the results imply a strong need for building relationships to advance discussions. The final question deals with how much information tech executives are willing to disclose in an introductory meeting. Not surprisingly, none of the participants are willing to be fully transparent about the financial positioning of their firm. In fact, the majority of the executives indicate that they do not disclose any information during an introductory call that stems from an inbound. The remaining executives suggested that they provide high level financial information, which could be helpful to gather an immediate evaluation of any potential opportunity and validate whether there is a fit between the two parties.

Additional disclosures will often require a non-disclosure agreement (NDA) to ensure confidentiality, but more importantly the relationship between the two parties must be established to advance discussions and disclosures. This relationship begins through the inbound and introductory call stage and with further discussion and nurturing, can lead to strategic opportunities.

Conclusion

In conclusion, while the administered poll was only four questions, the insights that can be extracted are plentiful. The first of which being the volume of inbounds tech executives are receiving, forming a hyper-competitive landscape. Next, is the edge that strategic players, as well as parties with proven domain expertise have in rising to the top of this environment. And finally, the notion that a successful inbound is the only the beginning of a relationship that must be thoroughly developed to bring tangible results.

We’d like to once again thank Peerscale for allowing us to attend their annual retreat, as well as all the participants for providing the responses to this poll. Thanks for reading, and if you have any questions regarding M&A or any related topics, do not hesitate to reach out!

To learn more about Peerscale, check out their website: peerscale.com