The technology industry is, perhaps, the most competitive and most lucrative industry on the planet. Thousands of companies, employing millions of highly skilled workers, battle it out to see who can come up with the next big thing or secure contracts.
No wonder then that the industry sees more of its fair share of mergers and acquisitions. Here we look at the most significant factors that are involved with takeovers and how they are handled.
The recent £550 million takeover of the UK company Imagination Technologies, by Chinese investment firm Canyon Bridge Capital Partners, highlights the global nature of the technology industry and how legally complex mergers and takeovers can be.
Taking a British company and transferring its ownership over to a Chinese company involves detailed negotiation and deliberation on behalf of both parties and their respective legal representatives.
And, just like any other merger or acquisition, factors including business, intellectual property and employment all need to examined carefully.
Early on in the process, the buyer, will make an offer to the company it wants to take over (the seller), who will then consider the offer before agreeing to it in principal or declining it. Factors that are likely to be in question include who will go on to run the company, that is to say, will the current board of directors stay on and how will the payment for the company be made – often this will be done using a combination of capital and shares.
The end result will be a sale and purchase agreement (SPA).
Once an SPA has been agreed, the process then enters the stage of due diligence. This is, basically, an audit that looks at the assets and business of the company which is to be bought and serves to confirm to the buyer the true worth of the acquisition.
Due diligence is undertaken by legal experts and may include the arbitration of any outstanding disputes with third parties.
Once due diligence has been established both the buyer and the seller will draw up the covenants that are to be written into the acquisition agreement. Covenants describe actions that are to be taken or that cannot be taken during a prescribed period of time and serve to ensure that the company being bought continues to operate in a fashion that does not impact on the value of the acquisition.
Once covenants are agreed both parties should be in a position where they are ready to close the agreement.
Establishing a price that all parties are happy with, auditing the company to ensure its value and then putting rules in place to secure the value of the company moving forward are the three main procedures undertaken in the event of a merger or acquisition and define how tech companies deal with takeovers.