Overview
When buying a uk company and carrying out your due diligence on potential m&a opportunities, make sure that you regularly re-asses your business requirements. Last year in 2021 there were 130 UK tech firms acquired by American companies alone. It is an area of business that is very active for companies that know they need to continue investment and find new solutions to help keep a competitive advantage.
When considering businesses for sale on a technology company, there are many areas of expertise that need to be carefully considered before progressing forward. The below areas are some headline points that will start this process and help uncover areas of interest or whether the opportunity is not a right fit.
SECTOR SPECIFIC CATEGORIES
Intellectual property (IP)
When considering businesses for sale within the technology sector it is important that you clarify the intellectual property (IP). There are four main types which include; patents, trademarks, copyrights, and trade secrets. Many forget this part of their business but you will need to review this in-depth. Consider seeking professional advice on this area before you progress in buying a uk company.
One key area to note is that some software is open source and is subject to “copyleft” licences. If then used in proprietary software this technically means that the proprietary software must be made available on an open source basis. If you are beginning your m&a research, consider these questions:
- Who are the stakeholders of the IP?
- Have all employees signed a confidentiality and Invention form?
- Evaluate the core assets and whether that aligns with the IP?
- What quality controls have been put in place on the IP licence?
- Check if the software uses 3rd parties and or is open source?
Micro Startup
When buying a UK company, software acquisitions can be challenging as they move at a fast pace given the industry and user momentum, especially if they revolutionise a sector. This is why many turn to looking at micro startups as a way of building an strategy and revenue growth. It focuses on the offering rather than the scale and reach like a more traditional m&a . With this unique process you might look at the below alternative questions, when considering businesses for sale:
- How much ground work has been achieved so far?
- What is their core service and what does the technology solve?
- Is the solution scalable?
- Does it complement your existing product line up and strategy?
- What is the ethos and culture of the target company?
Data
Data is a key element to any company, especially one specialising in technology. It has been an area of contention over recent years where many have collected data unknowingly by their users. As a result, there have been various new laws and requirements brought in place in order to resolve this.
On the other hand, data is the way various companies make money and understanding that business model, as well as if the technology is proven, will be a deciding factor on your m&a decision. With this in mind, the below questions are worth considering before buying a uk company:
- What information has been collated over the years?
- Have they collated any unique identifiers or activity data?
- Is there a suitable privacy policy in place?
- Has the data been collected in a GDPR compliant manor?
- How do they currently monetise the data collated?
Development team
The development team is an underlying asset within a technology company. Finding a strong team that is creative and dynamic with their technological ability is gold dust! The team should have skillsets in different areas and this is a factor to consider even even if it's from a high level summary.
Knowing what style of database is being used (e.g. NoSQL), if a cloud based solution is in place or what coding language the team uses, also known as Syntax, will help clearly define how the business can grow and what maintenance is needed for the application going forward. (FYI - refer to the micro-setup section below for m&a on early startup projects).
Even if this area of the company is not your expertise, when considering businesses for sale, here are some questions to consider asking in order to gain an insight into their operations:
- Has the team signed the relevant market confidentiality NDA's?
- What are their core capabilities? (E.g. database or syntax).
- What is their plan for long-term maintenance?
- What budget is in place for future projects?
- Does this acquisition offer suitable business diversification?
Third-party suppliers
During the m&a due diligence phase there needs to be a clear and concise understanding on what 3rd parties are being used. Without the right licences or agreements in place, some third party contractors might own the target company's intellectual property. Refer to the IP section above for further information however, this is maybe an area you take legal advice.
When looking at the provider you need to check the relevant support is in place if there is an outage and what their SLA's are. Analysing recent monitoring reports might be another way you to gain a better insight on how the provider is performing. Finally, do some wider research by checking reviews they have received online or search for any recent headline news.
When considering businesses for sale initiate your research with the following questions:
- What 3rd party suppliers are being used?
- Where is the database being held?
- Before buying a uk company, who has full admin rights?
- Are you running the latest software versions?
- check domain names are under the registered company?