How to Identify A Small M&A Deal in the UK Technology Sector

6MS.289

I have been doing some thinking about how to screen for small M&A deals in the UK technology sector and have been working on creating a short list of potential targets.  I thought I would share some of this work with you to help you with your own acquisition searches.

My starting point was to create a database of the market I wanted to address and for this I turned to Companies House Data and have identified 1570 companies which are covered by the SIC code relating to Computer Services (including Software Development, Retail, Maintenance, Repairs, Training and Consultancy).  I restricted the companies to those with Revenues of £5m or less.

[Read more…]

Buy Side M&A – An Art or a Science?

6MS.287

 

Working on the Buyside in M&A can be like searching for a needle in a haystack, particularly if your responsibility is the  origination of the deal (often the most difficult).

I thought it would be helpful to share some of my thoughts and my approach to the problem.

I have been doing some buyside M&A preparation this week in the Technology Financial Services Sub-Sector and thought this would make a good case study.

Using the Six Minute Strategist Methodology, lets split this into Six Steps.

  1. Objective Setting
  2. Landscape Defining
  3. Screening
  4. Short Listing
  5. Refining
  6. Approaching

You will note this stops at the point at which the first discussions take place between the target company and myself and/or my client.

I have prepared a brief video for you to watch before you decide whether to read the blog post (of course, I hope you do!!!) [Read more…]

What does the UK Technology Mid Market look like?

What does the UK Technology Mid Market Look Like?

I have been working in the UK Technology Sector since 1998 and have spent hours and hours analysing the sector.  While my research is far from complete, I have identified over 1,300+ companies in the UK mid-market, which I define as companies with revenues of £5m to £100m.  This is fertile ground for Private Equity companies as well as Corporates seeking to make acquisitions in the UK market.

I thought it would be interesting to share a little of my research results to give you and idea of what the UK Mid-Market sector looks like.  (Please note: The data in this piece of analysis has been sourced from Companies House returns which only cover England and Wales.)

Many of my clients have sought acquisitions based on very limited criteria including revenues and geography and I will use these two variables to illustrate the composition of  the market.

Turnover

The stratification of these business by turnover tells an interesting story;

  • £5m-£10m – 453 companies (34.6%)
  • £10m-£15m – 263 companies (20.1%)
  • £15m-£20m – 152 companies (11.6%)
  • £20m-£30m – 186 companies (14.2%)
  • £30m-£40m – 81 companies (6.2%)
  • £40m-£50m – 54 companies (4.1%)
  • £50m-£100m – 119 companies (9.1%)

Notice, that 80% of the companies have £30m revenues or less.  The distribution of these companies by revenues is shown in the graph below.

 

Graph showing the distribution of UK Mid Market Technology companies by revenues

Geographical Distribution

When addressing a market, the geographical location of a company is a key factor in evaluating its suitability to whatever strategic purpose is being considered.  I have always found it helpful therefore to be able to analyse the geographical location of company data sets.

In the image below you can see the geographical distribution of the 1300+ companies in the data set.

Map of the UK Mid Market Technology Companies

In the image below, I have drilled down to examine the companies which are in the South East of England, showing how more detailed analysis can be achieved.

South East England UK Mid Market Technology Companies

 

 

 

What next?

This work leaves many questions unanswered. Here are a few…

  • What sectors and subsectors are they working in?
  • What strategies are these companies adopting?
  • How profitable are they?
  • What does their 5 year track record looks like?
  • Who owns these companies?
  • Are they independent?  Subsidiaries of international companies? Part owned by Private Equity firms?
  • Are they acquisitive?
  • Are they struggling, surviving or soaring in this market?
  • Are they in need of external capital?
  • Are the owners/directors looking to sell their businesses and retire?
There is still much work to do.  
If you are interested in raising capital or doing M&A deals in the UK Technology Mid-Market sector, why not give me a call or drop me an email to discuss your strategic objectives.  You can reach me at jbdcolley[at]aol[dot]com.  
Thank you for joining the Conversation.

6MS Episode 52 Do you understand the meaning of Acquisition Rationale?

Listen to my latest phonecast

Is there such a thing as Acquisition Rationale? Part 3

 

Are Acquisitions Rational?  

How can you make sense of Acquisitions and where can you start if you want to devise an M&A Strategy?

In the first part of this series which you can find here, I introduced the idea that there are Six Key Factors which can be identified in rationalising Acquisition Strategy.

We looked at Ability to Execute and Financial Resources from the perspective of both the Acquiror and the Target companies.

In Part 2 of the Series which you can find here, I discussed the four factors of Intent from the perspective of the Acquiror.

In this Part 3, I shall look at these four factors from the perspective of the Target Company.

[Read more…]

Is there such a thing as Acquisition Rationale? Part 2

 

Are Acquisitions Rational?  

How can you make sense of Acquisitions and where can you start if you want to devise an M&A Strategy?

In the first part of this series which you can find here, I introduced the idea that there are Six key factors which can be identified in rationalising Acquisition Strategy.  We looked at Ability to Execute and Financial Resources from the perspective of both the Acquiror and the Target companies.

[Read more…]

Is there such a thing as Acquisition Rationale? Part 1

Are Acquisitions Rational?  

How can you make sense of Acquisitions and where can you start if you want to devise an M&A Strategy?

In this blog post I will suggest that it is possible to set out a framework which you can use to establish and explain an acquisition rationale.

In this discussion we must start with the two protagonists – the Acquirors and the Target Companies.  These are shown in the diagram below.

[Read more…]

Six Minute Strategist Introduction to the 100 Day Plan

 

 

 

 

 

 

 

 

 

 

 

 

One of the major reasons that acquisitions fail is the poor quality or absence of post completion planning.  The first three months are crucial as during this period, the staff of both companies are receptive to change, indeed they expect it.  I thought I would set out a Six Minute Strategist brief introduction to the 100 Day plan to help you with your planning.

Pre Completion

The key actions prior to completion are centered around the preparation of the post completion action plan.  This is a statement of the obvious however planning rarely starts until the probability of completion is high and this often only leaves a few days to do this.

Management on both sides should ensure that adequate time is spent prior to the completion of the deal in the preparation of a 100 day plan which is clearly set out.

The specific components must include:

  • Timetable
  • Specific Objectives
  • Specific Responsibilities
  • Specific and Measurable Actions
  • Budget Associated Capex or Opex
  • Milestones

Committees and Panels

The overall plan should be in the hands of a small senior management group from both companies (no more than 5 people) who have over all command and control of the plan.  The chair of this committee should be the acquiring company’s CFO and the committee should report directly to the CEO and be prepared to present reports to the full board of the enlarged company

The work of the Committee can be delegated through a panel structure to the appropriate line managers.  This can be done on a process, function, product, service or geographical basis or a matrix of some or all of these.

Regular Review Meetings 

The Main 100 Day Committee should meet at least weekly.  This is not to say that regular daily informal communications should not be the norm.  The panels should also meet on a regular basis and have a systematic reporting format for presenting their information and progress to the main Committee.

Transition

The are several critical stages to the process which should be clearly identified and understood.

  •  Prior to Completion
  • Immediately (-24 hrs) Prior to Completion
  • Immediately (+24 hrs) Post Completion
  • The First Week
  • The First Month
  • The First Three Months
  • Thereafter

Management should think about these stages as they prepare the 100 day plan and ensure that their timetable is responsive to these milestones.

Cost

The capital expenditure and operational expenditure required for the implementation of the plan needs to be clearly identified and budgetted for.  This should be in the hands of the acquiring CFO.  It is important that the enlarged business has adequate working capital (plus a contingency) to execute the plan.  It should not be forgotten that financial requirements may lead to a re-negotiation of the terms of the deal if the target company is found to have significant operational or infrastructural deficiencies which require additional investment.

Managing Change

Apart from the business challenges, the management of people and change is, in my opinion, the greatest challenge.  Beware that all staff will be very unsure about what the new organisation means to them but there will be a willingness to accept change if it is communicated clearly and logically.  The window for this acceptance is likely to close within the 100 day period and poor communication is likely to see it close much faster than that.  In all aspects of the planning, prepare to work hard with your employees to ensure that the process is seen as positive, progressive and fair.  Tough decisions, when necessary, must be handled in person and with tact and diplomacy.

Ensure that your HR staff are well versed in the latest local employment regulations and practices and if you don’t have this support it is worth seeking external advice.

I hope you found this helpful.  If you like this please RT and come on over and subscribe to my email list to make sure you don’t miss any of my new content.

 

How to Segment the UK Technology Market

I have been doing some work recently to try to segment the UK technology market in order to help identify suitable target companies for my clients.  In the process of this I have built a database which, as of writing, runs to over 9,100 companies and over 4,000 unique companies.  Preparing this information has taken many hours but now incremental increases to the data are relatively simple to do.

I thought it might be helpful to share some my methodology with you as it might be helpful with your own market segmentation analysis.

The first step is to collect and collate a relevant range of technology partnership lists.  These are essentially list of resellers or implementation partners for the range of technology partners relevant to your company.  It is worth collecting the full range of data that can be gathered as this allows further selection and in-depth analysis in due course.  An example of this is the different partnership levels that might apply to one channel.

It might be helpful to show a worked example.  I have selected five technologies: Juniper, Cisco, HP, Microsoft and VMWare.  Taken on their own, the pie graphs below demonstrate some of the granular information and the share each has as part of the larger database.  This information on its own does not help very much.

 

What is more interesting is to identify the companies with more than one competence and to see the nature of the distribution of technology skills between competing companies.  This looks like this.  There are 4,105 unique companies in this data set, of which 1,532 are not relevant to the analysis presented.

 

From this information we can now start to drill down and begin to prepare a short list.  As I routinely collect geographic information on companies, it will be possible to map these to an interactive map of the UK to further remove unsuitable geographic outliers.

The next step is to refine the analysis by selecting only certain types of partners.  In the diagram below, I have selected VMWare VIP Enterprise partners, only Cisco Gold partners, only MS Cloud Service partners.  The other HP and Juniper partners remain the same.  The effect is to reduce the number of companies that will need to be screened.

This is clearly only the start of the screening process.  However, adding additional partner lists to the database is a simply and non-time consuming process.  Once added, more and more relevant analysis can be conducted.

I believe that this can also help with the formulation of strategy as the technology gaps in the market are readily visible and while not all of them make sense, opportunities might be revealed.

It is also possible to take very extensive information on one particular partner channel, Microsoft is the best example, and to compare and contrast the nature, shape and composition of their channel specialisations and industry foci.

If you would like to know more about how I segment the market and if you think this might be helpful to you, please contact me directly, jbdcolley[at]aol[dot]com.  If you like this post please retweet

How to find Acquisition Targets

Working on the buyside of a deal involves being able to segment markets and identify targets.  In order to do this effectively, it is important to identify as many of the companies that meet your defined target market and then eliminate those that do not meet the criteria.  This is where it is crucial to have deep market knowledge and expertise.

In the flash demo below, I have segmented the UK SAP market to briefly demostrate how I go about target acquisition searches.

In order to capture several criteria, there are duplications of companies which I have tagged as D and companies which are not suitable targets which are tagged as E.  You can interact with the flash demo below to move these in and out of the dataset.

I can sort and search on different aspects of their skill sets and this enables me to very rapidly create short lists of targets on which to focus, eliminating those which do not meet my search criteria.

Another aspect of searching is to have keen regard to geographical location.  For this I use the company’s post code (See field PC1) which enables me in my software application to map the targets.  This can be done for any country in the world where you have the postcode or zip code.

If you would like to know more about target identification and selection please contact me at jbdcolley[at]aol[dot]com or leave a comment on this blog for me.  If you like this please RT.

[kml_flashembed publishmethod=”static” fversion=”8.0.0″ useexpressinstall=”true” movie=”http://jbdcolley.com/wp-content/uploads/2011/05/SAP-UK-Demo-7-31-May-2011.swf” width=”600″ height=”600″ targetclass=”flashmovie” align=”left”]Get Adobe Flash player

[/kml_flashembed]