The research, which seeks to establish the 'market standard' for tech M&A in the German market, shows that of the sample deals, some 40% used a 'locked box' mechanism to fix the price at an early stage of the deal – this is usually only achievable when the seller is in a very strong position. Closing accounts which ultimately determines the 'correct' purchase price at a later stage, accounted for 50% of deals. Nonetheless, in a less seller-friendly market, the distribution between these two purchase price mechanisms would be clearly skewed towards closing accounts.
Interestingly, companies undertaking M&A in the technology sector did not commonly seek out legal advisors with strong technology-sector experience. While some 75% of corporate finance advisers were appointed on the strength of their technology-sector knowledge, only 46% of lawyers appointed were sought out for their sector experience. This relative lack of technology experience among law firms appeared to manifest itself in the way transactions were undertaken. Safeguards around intellectual property, for example, typically have a disproportionate importance in technology deals. However, only 31% of deals in the survey actually had an IP-specific workstream. Yet of the technology-related risks that were identified in the same survey, some 67% of these were IP-related. It would appear then that there is a significant risk that a large number of IP risks in technology transactions may be going unidentified if so few deals are properly assessing IP as part of the due diligence.
Rainer Kreifels, Head of Pinsent Masons in Germany said: "The tech M&A market in Germany is clearly very healthy and sellers appear to be in a strong position. But our survey shows that deal-makers do need to be aware of the technology-specific risks to their deals to ensure a successful long-term legacy."
A full version of the report may be downloaded here.