Navigating deals in challenging times

November 13, 2020 | TechExit

Uncertainty is seemingly part of the “new normal” as businesses learn to navigate through uncharted waters in the wake of the global pandemic and economic recession. When it comes to acquisitions, what are buyers looking for? What, if anything, has changed as a result of the pandemic? How do sellers prepare for a sale, and once a LOI is received, how do you prevent the deal from falling apart?

Iain Mant is a prominent securities and mergers and acquisitions lawyer in Fasken’s Vancouver office, and a founding TechExit West supporter. With extensive experience advising on the negotiation, structuring and implementation of public and private M&A transactions involving technology companies, Iain knows how to avoid the pitfalls that can cause a deal to go sideways and what is required to successfully cross the finish line.

Iain is part of the TechExit.io West panel discussion on Deal Killers: Preparing for Transaction Challenges. In this interview, Iain answers our questions about mergers and acquisitions today.

Q: What trends are you seeing in terms of mergers and acquisitions today? Are deals taking place?

The landscape has changed slightly but there is still a strong appetite for transactions and many transactions are occurring. One noteworthy change is that buyers in traditional sectors are recognizing the impact of working from home and increased online activity is having on business. Many see a gap in their current product offerings, or they want to supplement or expand their offering.

Given this context, the desire to fill these gaps is making a large number of companies much more attractive for acquisition.

There are two types of companies: must-haves and maybe-nots. Must-haves are very attractive and deals are happening on an accelerated basis because these companies are either filling or supplementing a gap for acquirers. Unfortunately, some companies fall on the wrong side of the equation and if their business is negatively affected by the current environment may be candidates for a distress sale.

What is an example of a recent acquisition that addressed a gap?

Vancouver-based fitness tech start-up, Trainerize, was acquired by ABC Financial, a United States-based software provider for the fitness industry.  It exemplifies how a bricks and mortar dependent business challenged during the pandemic quickly identified how a tech company could to help turn it into an opportunity.

How has the pandemic impacted deal negotiations?

From a legal perspective, negotiations have not been negatively impacted.  Legal due diligence was already primarily conducted through data rooms pre-pandemic, and that continues. One issue that is hard to address is culture and fit. When you can’t travel cross-border or internationally, a buyer can’t meet the team it is acquiring and it is more difficult to establish proper engagement.  This may lead to increased integration risk post-acquisition.

What advice do you have for companies preparing to sell?

A few steps will help facilitate the transaction:

  • On the legal side, pay attention that cap table records are accurate, complete and documented.
  • Take a proactive approach to protecting intellectual property including managing open source software and entering int assignment and proprietary rights agreements with all employees and consultants.  Ensure that all employees sign confidentiality agreements.
  • Build a strong culture that will be flexible and amenable to a different ownership group. This will help with post-acquisition integration.

What value do you think this year’s TECHEXIT West attendees will receive from the virtual conference?

I think our current environment may cause some companies to take a different approach to M&A. They might receive interest on a different timetable than they were expecting so it’s critical to invest the time to be educated about the process. I’m confident that attendees will gain answers and insights about how to navigate the deal process for a successful transaction during these challenging times.

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