Publicly Traded Technology Companies In Complex Mergers And Acquisitions - What You Need To Know

publicly traded technology companies complex mergers and acquisitions

M&A can be complex and involve many legal, business, tax, employment, and intellectual property issues. Managing these complexities successfully can lead to a successful transaction for both parties. 

The first trend involves "mergers of equals." In these mergers, companies of similar size combine. Often, these combinations create a global or multinational powerhouse. 

What You Need To Know 

Technology acquisitions are often complex, especially for high-tech companies. The rapid pace of innovation in the sector means that a single successful product can quickly become obsolete, so maintaining a competitive advantage requires constant reinvention and an ability to recognize and acquire rising technologies. 

The global SPAC trend is driving interest in acquiring public technology companies. The process differs from a traditional private company merger, and the legal considerations require attention to detail, so you need help from Ed Batts - Palo Alto, CA - Lawyer

For example, directors' and officers' insurance coverage structure will be significantly more complicated than for a typical acquisition. A knowledgeable insurance broker can assist in preparing and placing policies to ensure that there are no gaps in coverage. 

In 2023, despite lower domestic revenue from consumers' reduced spending behaviors and higher expenses due to the COVID-19 pandemic, many tech companies continued to pursue M&A opportunities. 

Tax Considerations 

Technology companies contemplating a sale should understand their current tax structure and model the specific tax consequences of a transaction. This information is valuable to share with potential buyers, resulting in a more efficient sales process. 

Regardless of the transaction structure, acquisitions present unique tax considerations. For example, software-as-a-service (SaaS) vendors should be mindful of their EV-to-revenue ratio when negotiating with potential acquirers to ensure the transaction is tax-efficient. 

Similarly, SPACs should consider the tax implications of their financial structures and whether they are utilizing golden parachute payments to retain key talent after a change-in-control event. SPACs merging with a public company should also properly structure their directors' and officers' insurance coverage. 

Financial Considerations 

The choice of whether to pay in cash or stock sends a significant message about how confident the acquirer is in its ability to realize the synergies it expects from the acquisition. Typically, an acquirer will offer stock so that the cost of the expected synergies is reflected in the price it pays for the acquired company rather than being paid out in the form of additional shares to the selling shareholders. 

The use of stock can also limit the extent to which selling shareholders suffer a decline in the acquirer's share price following the transaction's closing. This can be accomplished by incorporating "earnout" provisions in the deal structure that allow selling shareholders to receive additional money based on future performance metrics after the transaction closes. 

Technology companies frequently use cash and stock in their M&A transactions. However, the complexities of this decision should always be considered. M&A transactions involving public companies are often complex, and the boards of both the acquiring and the acquired companies must be vigilant to protect their shareholders' interests in the process. 

Intellectual Property Considerations 

Whether through licensing or collaboration agreements, technology companies often maintain intellectual property assets through patented software and trademarked images. An acquirer must review these contracts early in the diligence process to confirm that a transaction will not trigger a "change in control" or anti-assignment provisions. 

For technology companies with a significant presence in the global marketplace, an acquirer may also want to review export control or foreign corruption laws and compliance. Failure to evaluate these matters before closing can expose a company to substantial post-closing penalties. 

Although comprehensive empirical data is lacking, there is a widespread belief that markets in the New Economy are characterized by high rates of innovation and relative ease of entry, making cartels and monopoly power less durable than in previous periods of economic history. For this reason, a thorough intellectual property due diligence process is essential for technology acquisitions.

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