Dear Clients and Friends,
As many of you know, over the past 17+ years we have advised on more than 200 successful m&a transactions. We use the term “successful” to mean that the deal completed. But we recognize that investors and acquirers assess if a transaction was “successful” in hindsight. For a financial sponsor, the answer eventually becomes clear. For them, it’s all about exit value. But for a strategic acquirer the answer can be more amorphous – it’s all about whether the acquired firm added enough value to the combined firm to justify the cost – It’s not only about the purchase price, it’s also about the distraction and the disruption – and that means realizing “synergies”.
A few months ago, EY- Parthenon put out an insightful series of articles on successful m&a integration. They noted that [for strategic acquirers] “… the identification and realization of synergies are at the heart of M&A value creation”. “…Synergies can be the competitive advantage in a bidding process.” And “… they are a major part of the narrative that executives use to explain the strategic objectives of a transaction to their own boards, shareholders and the market.” Clearly, it is the potential for synergies that can allow one strategic to outbid another (or a financial sponsor).
One part of the EY-Parthenon article resonated particularly strongly for us: “… traditional deals tend to focus on cost savings, but revenue synergies typically drive the real value, as cost savings generally allow the acquirer to cover the deal premium and tend to be one-time albeit recurring, whereas revenue synergies can continue to grow….”. We couldn’t agree more. Too often, we see strategics willing to look at only potential cost synergies in evaluating acquisition opportunities. That’s short sighted. It’s the revenue synergies that are likely to add the most net value over time.
Facebook didn’t buy WhatsApp for $22bb to save costs; Intel didn’t buy MobilEye for $15bb to eliminate duplicate expenses. These and most other successful Infotech m&a transactions are focused on revenue synergies. Oracle’s $10bb purchase of PeopleSoft was all about expanding into new markets; as was Adobe’s purchase of Marketo for $4.7bb. And for that matter, so was Walmart’s acquisition of Flipkart for $16bb and of Jet.com for $3.3bb. The same is true in the middle market where we operate the most. As EY- Parthenon noted: “Long-term growth depends on successful integration that drives revenue growth.” It’s all about the revenue synergies.
We enjoy helping buyers and sellers understand the potential for increased net value by coming together. It’s about a lot more than eliminating duplicate expenses. It’s about growing the combined business together for a stronger future.
Our March 2019 report on recent m&a transactions, trends, and value in the dozen+ segments of the Infotech world that we follow and sometimes lead can be found below. A few of the more interesting recent transactions include:
- ACI Worldwide (Nasdaq:ACIW) agreed to acquire Speedpay from Western Union for $750mm, valuing the company at 2.1x LTM revenue and 8.3x LTM EBITDA,
- Qlik (Radnor, PA) agreed to acquire Attunity for $560mm, valuing the company at an implied 5.9x LTM revenue and 55.9x LTM EBITDA,
- Jobvite (San Mateo, CA) raised $200mm in a Series E funding round led by K1 Investment Management,
- Gong (San Francisco, CA) raised $40mm in a Series B funding round led by Battery Ventures,
- Marlin & Associates client Sermo completed a recapitalization with Abry Partners. For more details, please click here.