Brian Burson

PREPARING For acquisition

Summary

Technical leadership of small to mid-sized companies will likely be involved in either acquiring another company or will be acquired themselves. Understanding the process up front can help with planning, especially when it comes to what technical details should be shared when. Following a sale, determining the right Transition Services Agreement terms between the buyer and seller can save a lot of headaches and heartburn.

Issue

It’s likely that most small to mid-sized companies will be acquired at some point in their history. Technical leadership needs to be prepared for this—ready to describe the current system, have insight into what needs to be addressed or fixed, and lead efforts to determine how the existing system will be integrated into the buyer’s system and environment.

Technical leadership’s responsibilities during a sale process are: 1) keep current production operations running with the same or better performance, 2) advise on what technical details/issues need to be communicated and subsequently addressed before and during the sales process and 3) after the purchase, make sure all technical hand-offs are handled.

One of my former companies was sold late last year. In prior years, the selling company had acquired seven different brands in the same line of business and in early 2017 decided to sell off four of them—basically the ones that were not focused on the specific business sector they were interested in. The challenge with this kind of sale is carving out the assets being sold from the larger entity vs just selling the entire company.

Technical Disclosures during Discovery Phase

At the start of the process, information is sent to a large pool of potential buyers. Deciding what to share with this group requires some thought. Share too little and there may not be much interest, share too much and your competitors (who are all in this interested pool) have more ammunition about your weaknesses. In the sales processes I’ve been involved with, we shared a few system performance metrics and a high level conceptual diagram—this was enough to give some idea of what they might actually be buying.

Below are examples of two system performance metrics. Reporting on system incidences or outages gives a potential buyer some idea how stable the production system is and reporting on system uptime gives insight into reliability.

A system conceptual diagram shows the interactions between main sub-systems and any third-party systems.

Technical due diligence

Once there is a potential buyer, a fair amount of information is provided as part of technical due diligence. Transparency is important, but again, too much transparency in the wrong areas can kill a potential purchase—experience around knowing the balance plays a huge role here.

Often times, the company being sold relies heavily on the selling company’s shared or central services. These dependencies need to be accounted for—either they need to be provided by the buyer or the company being sold needs to add staff to cover the work. Costs for both options need to be calculated and compared.

Another view into a system is provided from showing the technology stack in play across all systems.

Transition Services Agreement

After a sale is complete, a Transition Service Agreement (TSA) details what needs to be transitioned between the two parties and who owns the work and appropriate status tracking. Based on how long the seller is providing services to the buyer, actual costs are negotiated and agreed to. Clearly understanding the work and how fast it can be reasonably done is so important here. Otherwise, the TSA expires and there is still work to be done—meaning negotiating month-to-month charges. See the spreadsheet below for a sampling of what could be tracked during a TSA period.

success?

Transition success is ultimately determined by having working systems in place by the planned date(s). The diagram below shows common migrations that will happen as part of a sale process. A good technical leader realizes there will always be “surprise” elements thrown into the mix and plans accordingly when setting realistic delivery dates. In the case shown below, the buyer wanted to expand into Europe and thus needed support for GDPR at the same time as the rest of the migrations were in motion.