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How do you close a tech gap in a failing business?

Author: Leon Harris

How can a large multinational group or a smaller firm close a technological gap in its current or planned product line? 

Here’s our take:

Our comments below are general. We are not technical experts. That said, there are two possible routes.

One possibility is to conduct urgent R&D. This takes the time it takes.

Another possibility is M&A – acquire a company with more developed technogy and intellectual property (IP). This latter possibility may save much needed time.

The necessary steps in the M&A route may include:

  1. Search internationally for companies with knowhow in the relevant area. They may be in incubators, accelerators, on social media or elsewhere.
  2. Evaluate the technology of candidate companies. This may necessitate signing a non-disclosure agreement (NDA).
  3. Consider making an offer subject to due diligence.
  4. Conduct due diligence – technical, legal, accounting, commercial, tax, etc.
  5. Consider the candidate’s value to the group and its strategic business objectives. 
  6. To reduce the risk of overpaying, consider managing risk by making payments subject to technical milestones. 
  7. Consider also earnouts linked to financial targets e.g sales targets.
  8. Make sure patents and/or other legal protection are in place.
  9. Check if tax and grant incentive rules and any relevant regulatory rules allow an M&A deal.
  10. Review the quality of the seller’s management team and work-force. Does the buyer need or want any? Can others legally be let go? What severance/termination pay would be payable? 
  11. Does the seller have an international spread?
  12. How should the deal be structured?
  13. How should the consideration be paid and perhaps financed?
  14. What future development will be needed? How should future development be structured? Is double capital gains tax a possibility if IP is removed to an offshore IP holding company?
  15. Everything else needed.

Legal aspects:

Always consult in good time with law firms in each country concerned regarding all relevant legal aspects. In particular, ascertain whether legal protection is in place such as patents or copyright. Check also that all privacy legislation is observed and that an appropriate privacy policy is publicized and observed. Check that appropriate anti-hacking data security measures exist. Check that any environmental requirements have been met. Check what else needs to be checked! All this is to help reduce the business risks that may be involved in an M&A deal.

Tax aspects:

Always consult in good time with accountants, lawyers and tax specialist in each country regarding all relevant tax aspects. These may include: claiming and using tax losses, tax incentives and R&D incentives. Also check double tax relief including foreign tax credits or  foreign income/capital gain exemptions. Check that any structure or business model adopted is not over-aggressive and prone to tax authority challenge. Check what else needs to be checked! Again, this is to help reduce the business risks that may be involved in an M&A deal.

Do you need AI or people to get a business deal off the ground?

You need both. A good AI (artificial intelligence) agent may help provide an initial general picture and point out product strengths and weaknesses it is programmed for. But human specialists apply judgement and often notice specific aspects to consider. 

We strongly having a project management team with an experienced team leader to coordinate things. An appropriate team leader might be a senior executive, an accountant or lawyer or investment banker or an experienced M&A advisor (such as our firm….). 

What else matters in a deal?

Plenty. In particular, evaluate the motives, resources, risks, strengths and weaknesses of each party. And watch the timetable. 

In conclusion:

Timing is a major factor in a technology deal. An M&A deal to acquire a company with desired technology typically takes a few weeks or months. How long would it take to develop similar technology via the group’s own R&D efforts – years sometimes? Can the group afford to wait years? Usually not in Silicon Valley and other high-tech locations.

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