It is said that all companies are tech companies today, and as they become more technology-enabled, both possibilities and risks grow. And the view on technology in transactions is no exception to that.
We met with Nish Teli, a technology in M&A specialist originally from the UK, now based in Sweden in KPMG’s Stockholm Office. In the UK, technology due diligence is an integral part of the due diligence process prior to a transaction. Not only this, but managing technology challenges is vital to successful integrations and separations (carve-outs). Technology typically underpins the majority of operational synergies in integrations and, conversely, is a cause of complexity in carve-outs.
– The Swedish and wider Nordic markets are buoyant. There is absolutely some interesting activity going on at the moment and we can definitely see the need to really focus on technology in M&A advice as part of our wider deal advisory offering. For example, Sweden has a lot of industrials, of which a large portion are looking to make transactions in tech in the near future, which will need to be appraised carefully and integrated successfully to really drive deal value. We are expecting significant movement in the market, says Nish Teli.
What can KPMG offer in the technology space of a transaction?
– Well, we really focus on the target's technology offering. From evaluating strategy to organizational structure and application environment to hosting, looking for a lack in investments, gaps in processes, assess scalability and resilience to unveil any hidden surprises, in order to get the deal value right. The benefit is that we also discover the upsides. For example, a large company's acquisition of a small tech company can completely transform an entire industry, or there are opportunities to optimize the business’ processes afforded by technology. This is all important knowledge for a bidder to understand. What’s important is that at KPMG, this is offered by ‘deal people’ who are focused on technology, so we understand the important technology levers that can drive deal value, as well as appreciating ‘deal pace.’
Why are IT and Technology such an important part of a transaction?
– Among other things, technology can drive deal value since it plays a vital role in a company’s ability to deliver products and services, automate critical business processes, and increase company revenue and profitability. Also, required investment, can have a significant impact on the overall deal value. That means that focus on technology can prevent deal value erosion, says Nish.
– Further, transactions aren’t just about buying and selling companies anymore – a significant proportion of transactions involve carving out elements of a larger business and selling the spun out business, which typically involves a significant amount of decoupling from the parent, a large proportion of which in terms of activity volumes and complexity is technology related. On top of this, organizations are seeking to acquire in order to integrate with their existing business. Again, integration synergies which drive deal value are often underpinned by technology.
Nish also tells us that timely management of technology transition is key to successful deal execution because it can severely impede the timescale and feasibility of achieving the full benefits of an acquisition. It can also minimize risk. Cyber risk is a real issue for organizations – a lax approach to cyber within a target becomes the acquirer’s issue, with inherent risks to reputation. Acquiring technology risks can quickly erode reputation.
And finally a classic question - how do you find Sweden?
– I am thrilled to be here and it is not because the low taxes and the sunshine, Nish says with a big smile. I’ve been here for around three months and can say with a high degree of confidence that you have much better coffee in your office!