Legal issues behind technology mergers & acquisitions

By Jonathan Snade
28 Jul 2014 View Comments

Merger and acquisition (M&A) activity in the technology sector is set to continue. As reports of completed tech deals emerge on a near-daily basis, other businesses in the tech space are having to consider their strategic options and objectives.

Further reading

The drivers for increased M&A trends are numerous, but include:

• Heightened competition in the market place - both in the UK and abroad - is forcing tech sector players to scale-up to remain competitive;
• Market dynamics mean that some tech companies are looking to divest their non-core business and service lines, presenting competitors the opportunity to acquire new technologies, talent as well as clients/customers;
• The need to access new markets or technologies to facilitate continued growth, which would be too costly or time consuming to build up from scratch. Particularly evident in the data capture and analytics space, with companies such as Twitter and Facebook looking for technologies allowing them to interact with users and to sell advertising to brands.

Whatever the underlying reason for consolidation, there are a number of key legal issues that the parties to M&A deals should consider well in advance of committing to a transaction.

Issues for sellers

1. Where is the exit likely to be?
Sellers need to consider and evaluate who the ideal purchaser will be and factor this into the sale planning process. For example, a sale to a competitor may present the opportunity of a complete exit, whereas a sale to a private equity institution would tend to lead to key management shareholders being required to remain with the business post sale and to re-invest in the purchaser vehicle.

2. Tax planning and structuring
A well-advised seller will have planned for their exit in advance, and spoken to lawyers and tax advisers as to tax planning strategies ahead of a disposal. For example, using entrepreneurs' relief, a seller can reduce capital gains tax arising on a sale of shares to 10 per cent (as opposed to 18 per cent or 28 per cent). Owners of tech businesses looking to sell in the near to mid term should therefore seek legal and tax advice to ensure that this relief is maximised.

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