Thursday, July 21, 2005

M&A for the masses

We hosted a CEO Forum last week on the topic of M&A. Getting acquired must be on top of mind for a lot of entrepreneurs because the event sold out in only 3 days. The statistic that was tossed about was that in 2004, among all of the VC-backed start ups that had some sort of exit during the year, 78.2% of them exited by being acquired. That statistic was corroborated by a July 2005 report from VentureOne (www.ventureone.com) that concluded:

"Mergers and acquisitions of U.S. venture-backed companies remained a healthy exit in the second quarter, as the median amount paid was the highest on record in nearly five years. However, the IPO market continued to flounder, as the number of initial public offerings declined significantly from a year ago. According to a report from industry tracker VentureOne, 77 venture-backed U.S. companies were acquired in the second quarter of 2005, with the median amount paid for these companies reaching $70 million, the highest median paid since the third quarter of 2000."

We had two entrepreneurs who presented in great detail how they went about negotiating the sales of their companies -- by far the best presentation was from Jim Connor of Sympro (www.sympro.com) who sold his treasury management software business to JP Morgan. Turns out that Jim had tried to sell his company twice before and those deals fell apart, which taught him a great deal about how to prepare your company for a sale and finally do the deal right.

But the one thing that surprised me was how little these CEOs understood the motivations of the companies doing the acquiring. I pointed them to an article that one our PR clients, Valchemy (www.valchemy.com) published on Forbes.com about that very topic. The article can be found at http://www.forbes.com/ceonetwork/2005/05/13/cx_pp_0512millerceonetwork.html. I'll sumarize the main reasons here:

  • Mature industries consolidate (it's one of those immutable laws of free markets)
  • Everybody else is doing it (companies and their Boards like to "make a move" to feel good that they are doing something productive)
  • Organic growth is just plain hard (why duke it out for market share when you can buy your way into new markets?)
  • Acquisitions are sexy (just announcing the intention to acquire will get the press buzzing and get people talking about you)

Overall, this was one of our most successful Forums and we plan to do a similar one in the Fall. Ping me if you are located in the Silicon Valley area, are the CEO or founder of your company, and want to be invited to the next event. -Mark

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