High tech M&A – strategic valuation

Abstract

PurposeThe purpose of this paper is to show how Sarbanes‐Oxley is motivating corporate boards to bring heightened scrutiny for all aspects of the acquisition process, including valuation. This paper examines how in addition to the high‐tech M&A strategic objective, the decision on the post closing integration strategy should be considered as part of a target's firm valuation.Design/methodology/approachThe paper argues that, within the high‐tech sector, the target firm characteristics in relation to the market are not sufficient for the basis of valuation. Planned management interventions, including the acquirer's management integration strategy decision, should also be considered. It further argues that intellectual capital retention, an important element of the target firm's valuation, is directly related to how closely the pace and degree of integration matches the acquirer's strategic objectives and the outcome of the due diligence.FindingsBased on the findings from a set of interviews with M&A practitioners in the high‐tech field, due diligence, post closing integration planning and identity are viewed as important factors to the acquisition outcome. They appear not to be considered for the target firm valuation, which may result in an acquirer paying an excessive premium.Practical implicationsFinally the paper proposes a framework to guide high‐tech firms to select an integration strategy and its valuation impact in relation to the acquisition strategic objective, the due diligence outcome and the integration strategy.Originality/valueThe outcome of this project is raising the importance of due diligence and post integration strategy in relation to other factors that impact transaction outcome such as intellectual capital retention and valuation.