‘M&A Lite’

(By Anthony Miller). I spent an enjoyable morning yesterday at a seminar on the changing face of M&A in the recession, hosted by legal firm Field Fisher Waterhouse (FFW) and corporate finance firm Cobalt. The point was made that many small IT companies are still keen to move into new markets but doing this by ‘full on’ M&A is less and less a viable proposition in the current economic climate.

FFW partner Neil Foster said he is seeing much more interest instead in what I might call ‘M&A Lite’, e.g. taking stakes in foreign companies or entering into licensing agreements to launch and promote products overseas, or even creating joint ventures. All of these approaches offer significantly lower risk – and require lower funding levels.

I think the route of licensing IP to players in overseas markets could appeal to UK IT players looking for a buyer at a ‘realistic’ price. I would imagine that the valuation of the IP alone would probably be higher on a relative basis than the valuation the company would be able to achieve for the total business, at least in today’s climate. If so, this should help set the benchmark valuation for the entire business at a higher level if and when a full acquisition becomes viable.

There are certainly large software players out there interested in taking stakes in small players or entering into such licensing arrangements (e.g. Creative Labs does this). Sounds like something that could perhaps work well for UK players – whether buyers or sellers.