We all know board directors are subject to the duties of care. The issues a director will face during certain sale or merger transactions are subject to additional so-called Revlon duties to ensure that reasonable efforts are made to secure the highest price available. The carrying out of these duties is subject to intense scrutiny. It is a virtual certainty that an M&A transaction of a publicly listed company in the U.S. will ultimately lead to litigation focused on how the board conducted the process. So how do directors ensure they are getting the highest price available?
One of the most important things the board does when considering the sale of a company is selecting a financial advisor. Choosing a qualified, experienced financial advisor with relevant transaction capabilities who has knowledge of all the potential buyers will be one of the most important decisions you make.
It seems simple enough: boards and management need to select a financial advisor with relevant experience that can get the shareholders the highest price in a sale. So what has changed that makes this process more critical, and more difficult, than ever? In today's M&A environment, it is not enough to have industry knowledge and transaction experience.
The potential buyer universe has changed. The right financial advisor has to have a comprehensive understanding of the global cross-industry markets and have direct knowledge and access to a multitude of different buyer constituencies that have become increasingly new active buyers. To put this phenomenon in perspective, only 27% of U.S.-based technology companies were sold to other U.S.-based technology companies in the past few years, a huge shift in the breadth of the buyer universe since 2014. This expanding universe of buyers in technology has shifted the advisory selection from boutique advisors to full-scale advisors with complete buyer reach access to maximize shareholder value.
In the past 10 years, the M&A market for U.S.-based technology companies has experienced shifts in the composition of its most active buyers. The market has seen the rise of the new buyer-types:
--Foreign acquirers, especially China;
--Institutional investors becoming active shareholders.
These trends have become evident with technology companies, with 73% of U.S.-based tech sold to buyers who were either foreign, outside of the information technology industry, or a financial sponsor...