"A Beginner's Guide to M&A" | FAQs from Hampleton's Webinars (#9)

Since the start of the outbreak in March 2020, Hampleton Partners has provided tech business owners with regular webinar updates regarding M&A prospects in the current climate. 

In this blogpost, we have compiled questions asked in our May 2021 webinars on activity in the UK and in the Enterprise Software sector – and their answers – through which we aim to provide "A Beginner's Guide to M&A".

There is clearly huge opportunity to introduce more artificial intelligence in healthtech – but in contrast to other verticals, the healthcare vertical is has also shown limitations to reaching this goal. Here are a few reasons why:

1) Access to data: Other verticals don’t necessarily interact with or use personal data. In healthtech, applications and AI-based predictive models must get access to significant data pools to generate effective AI solutions. Obtaining this medical data is a convoluted process: in the UK, it would involve obtaining it from the NHS; in the USA, patient records are collected on a state-by-state basis; in Europe, patient records are both country- and state-dependent.

Consider, for instance, the current attempt to introduce more AI into radiology departments to assist radiologists in interpreting scans. Looking at hundreds of thousands of different MRI scans would not suffice – not least because each scan itself contains thousands of datapoints, but also because AI is effective only if it processes millions of datapoints.

So, healthtech companies are deploying AI with big capabilities, but each introduction of AI involves the participation of medical professionals at a top level to obtain access to data. 

2) Applying healthtech: "How will your healthtech be applied?" is also a key question, particularly regarding who will use the healthtech: frontline doctors will have to fit it in with their behaviour and how they deliver healthcare. In the case of personalised medicine, e.g. wearables, one must navigate the data collection restrictions imposed by health regulators. In drug discovery, there might be more opportunity to collect data, as this data is one step removed from the delivery of care.

3) Commercialisation: Finally, commercialisation models are essential to defining the scope of AI in healthcare. Who will pay for the technology: doctors, hospitals, patients, drug manufacturers, machine manufacturers or insurers?

After 25 years in M&A I can safely say that many of the "pressure timelines" imposed on tech company sellers are often strategic, as they can lock you down as quickly as possible, providing you with few alternatives. But if you founded your company 10 years ago, and the potential buyer is a 20-year-old company, broadly speaking it is important to spend more than a mere 2-3 months investigating a potential strategic fit and ultimately closing an M&A transaction. 

In this sense, it’s perfectly acceptable to tell the counterparty in question that you are keen to implement a full M&A process to find the right partner for your company, investigating the market and talking with a number of potential partners. Ultimately, you have every right to talk to multiple buyers – just as they have every right to talk to multiple targets.

Of course, it’s important to keep a fair degree of momentum with the buyer who approached you. But while strategic buyers usually need weeks and months to determine the scope of the acquisition, in many cases they will attempt to lock you down into exclusivity regardless. 

You may have been approached by an M&A firm because you’re on their radar for a certain technology market segment. Alternatively, they may be representing a buyer and mayhave an agenda in mind. Regardless of the M&A firm’s motivations, the decision to start an M&A process must fit in with your own business and exit planning strategy.

Overall, you should consider cultural, chemistry and expertise fits, particularly regarding their teams. If you are in touch with M&A advisors, identify the size of their teams. If there are multiple M&A teams, you must identify exactly who would assist you with your M&A transaction. The M&A project team usually comprises 4-6 persons working on research, modelling, investment materials before the marketing and closes phases. You will need to talk to the leader of the deal team and ensure all understand your technology and have contacts to your potential buyer groups. Furthermore, you’ll be working very intensely with these individuals over the course of 6 to 9 months during what will be some stressful times regarding your business and your finance. You need to find someone competent, trustworthy, and who can align with your vision.

Once, you have a better idea in all of these regards, you should make a shortlist of 2-3 advisors who make sense for a company in your sector.

In the UK, processes are currently taking between 7 and 9 months. A typical M&A process will usually run for no less than 6 months.  

Although it is unwise to rush a deal with an exclusive buyer, do aim to expedite the process. The more time goes by, the more risk is associated at the business or acquirer level, and the more likely the deal is to fizzle out and eventually fail. 

In this respect, preparation is key: before you start a formal process, make sure you've engaged with your team and shareholders, as well as an advisor of some description, and confirm you are good to go. This should involve questions such as:

• Are all of our historical financials accurate and have we identified/fixed any issues? 
• Do we have all the metrics we’ll be asked for?
• Are all our legals in place historically?
• Will we get asked any questions that could come as a surprise?

It is very important to do your housekeeping before considering an auction process, as once the process has begun it will move very quickly – particularly if you are an attractive asset and have multiple counterparties at the negotiating table. In this case, you will want to answer their questions succinctly, quickly, so they can move through their vendor due diligence. Overall, you can reduce your time in the market by one month if your information is clean, at hand, and ready to share. To do this successfully, you should engage an M&A advisor.