M&A deals in the technology sector have been popular for some time. With “sector within a sector” focuses in areas such as fintech, biotech and lawtech, advancements made in artificial intelligence (AI), blockchain, the Internet of Things (IoT) and the application of those innovations, there are no signs of this slowing down. Buyers and investors are highly motivated to continue on their quest to find talented individuals, teams and quality products required to put them at the forefront of emerging technology. Coffin Mew shares some of the current themes and related trends it’s seeing crop up within the corporate deals arena. Hayley Bevis, partner and head of corporate at Coffin Mew, takes a look at some of the areas of focus across the sector.
A major theme over the past year has been the large increase in deals involving overseas companies making direct investments into the UK. While you could say that such interest in UK tech business is attributable to the imminent arrival of Brexit and a weakened pound, there is a definite recognition of the vast talent pool of tech expertise in the UK. Deals in the sector often involve the retention of the selling shareholders and key personnel post-completion, suggesting a recognition of the added value and skills that individuals continue to bring to such businesses.
Tech companies continue to look for alternative ways to incentivise performance and to aid the retention of key employees. Share option schemes such as Enterprise Management Incentives (EMI) and Company Share Option Plans (CSOP), remain a popular choice. There is also a noticeable increase in businesses offering flexible working hours and a concerted effort to take stock of a corporate’s Employee Value Proposition (EVP) more generally.
These four letters have quickly become a key part of all transactions over recent months and it would be remiss not to mention them. In the beginning, buyers and investors were keen to know what steps had been taken to deal with the imminent arrival of the Data Protection Act 2018 and the General Data Protection Regulation (EU) 2016/679 (GDPR). Now that it is in force, and given the significant implications, both financially and reputationally, of a breach, we can only expect to see an increased focus here.
In the vast majority of tech deals, there is nothing more important than how the target company’s intellectual property is owned. This includes aspects such as the ownership of logos, trademarks, patents and names but, especially in tech, the ownership and creation of source code as well.
It is important to strike a balance between providing comfort to a buyer or investor on the unique nature of any intellectual property and not handing over the “secret ingredient” before the deal has reached a conclusion. Often in these circumstances, commercial due diligence is key and can involve a number of additional parties to a transaction, such as third-party specialists who can provide secure and independent reviews of intellectual property, such as source code. This gives the buyer or investor an element of reassurance that everything is as they expect it to be.
R&D tax credits
Tech is at the heart of innovation but it is not uncommon to find clients that don’t realise that they could be eligible for certain tax reliefs, such as research and development (R&D) tax relief. Where companies are making an advance in science and technology, even as part of a bespoke project, opportunities to take advantage of these generous reliefs are often missed. We regularly refer clients to tax experts in this field, as it can make all the difference.
Social media is becoming an ever more important tool for businesses to market and sell, which means that buyers and investors are increasingly interested about how a corporate and its employees operate their social media platforms as part of an overall online presence. It is important that those at the top have a grasp on how social media is being used and that there is a clear policy in place as to what is and isn’t allowed. Lacking clarity can lead to unexpected crisis management and significant reputational damage in a very short period of time and can be a costly price to pay.
Coffin Mew’s corporate team is spread across the central south and specialises in mergers and acquisitions, employee share incentive arrangements, corporate restructuring, corporate governance, management buyouts or management buyins and banking and finance. If you would like any further information about technology deals or M&A generally, get in touch with our team:
*Hayley Bevis was highly commended in the Lawyer of the Year category at this year’s Solent Deals Awards.