Many startup companies have an eye on their exit strategy. The window for initial public stock offerings has opened wider this year, and that path is an option for some. Others may be looking for an exit through acquisition.

But mergers and acquisitions are not necessarily a viable option for all companies, simply because there just aren’t that many acquirers making many deals, said Brad Raymond, head if investment banking at Stifel. Raymond notes that Cisco Systems was the top acquirer last year with 52 deals. But to be among the top 30, a company needed to do only 10 deals.

Raymond moderated a panel on M&A during CED’s Tech Venture Conference in Raleigh. He was joined by Dion Cornett, vice president of strategy at Red Hat; Andy Cohen, vice president of strategic development and investments at Citrix Systems; and Anil Patel, director, corporate development at Google. Companies of various sizes are looking to make acquisitions for various reasons. The panelists offered insight about what companies look for in an M&A deal.


Companies make acquisitions for many different reasons. It could be to gain access to customers or new markets. It could be to gain access to technology. But such deals rarely happen between strangers. Cornett said that as an open source software company, Red Hat keeps tabs on the open source community. Red Hat is aware of who is active in the community and what those companies have contributed to it. Panelists were in agreement that deals develop with companies that they know well, such as existing partners.

“We almost will never buy a company when we’ve never had a relationship,” Cohen said.

There’s no set time frame for the length of the relationship. But the longer the relationship, the more touchpoints there are to gauge whether a deal makes sense. A relationship certainly reduces the risk profile, Cornett said. Patel added that the best relationships start with a technology or a product, not just knowing someone at Google.

“The fact that they’re living in our technology world makes a huge difference for us and they make that cut,” Patel said.

Small company mistakes

Companies that are looking to become acquired need to understand the acquisition process of the larger company, Cohen said. They must also understand the culture of these companies. Some companies have a culture that is very sales driven. Others might be more research oriented. A small company has to fit into that culture, another reason why existing relationships matter in acquisition decisions.

“If there’s not an alignment of culture and goals it’s just not going to work,” Cohen said.

Patel said that sometimes there’s a misalignment of ambition. While Google aims to reach billions of users with its products, a small company might see success in much smaller increments. Smaller companies must to be able to think about growth on a large company’s terms. A deal may not get worked out because Google and a small company have different definitions of success. Profitability is not a major concern, Patel said. Google is more interested in an acquisition’s growth potential.

“We want to grow and we want people that will help us get there,” Patel said. “We can find profitability along the way.”

But the smaller companies must bring something to the table that the acquirer values. Cohen said that Citrix gets a lot of inquiries from companies asking Citrix to help them.

“That’s not the right question,” Cohen said. “This is ‘what I can do for you.’”

Acquisition process

Google will approach a company that it thinks is a fit. But once those discussions start, it’s a long series of inquiries about all aspects of the company ranging from financials to company culture to product integration, Patel explained. And those queries will come from all parts of Google; the small group of people a company has assembled to respond to those requests will be greatly outnumbered. Nailing down all of those details can make a deal that should take two weeks turn into two months.

Cohen acknowledged that all of those questions can feel like overkill to a smaller company. But those questions come with a purpose and it’s not just due diligence related to the acquisition. Those queries also amount to integration planning, Cohen explained. The larger company is determining how the small company will fit into the larger one.