Technology valuation in an M&A process in a producing high-tech industry

Abstract

After years of holding back due to an instable economic outlook, merger and acquisition (M&A) transactions have significantly increased in the US in the years 2013 and 2014. An important part of the M&A process is the due diligence phase. Today, the focus of the due diligence process still lies on commercial, financial, and tax issues. Technical due diligence focuses on the evaluation of the produced product and on machinery investment. Only a minor part of the due diligence process consists of evaluating the underlying technologies and the potential to be used for other products or business cases. If a product has low technical complexity and requirements, this approach can be accepted. In case of a high-tech product, however, neglecting a holistic evaluation of a technology can result in an entirely wrong company value. As a first step it is analyzed what the typical process steps in an M&A process are. Different domains of due diligences are introduced and it is indicated where technology is influencing. Interfaces and requirements to the technology evaluation out of the other due diligence domains are indicated and discussed. Most common technology evaluation methods are introduced. A general indication is given about the possible use in an M&A process. Those methods are opposed to the requirement in a technical due diligence and rated about the fulfillment of these requirements. The best suitable methods are combined in a holistic model. A model is developed and explained to evaluate technologies of a company. As a major result of the model, it indicates the premium or discount price, which needs to be taken into account for an offer. The model is based on the most important evaluation criteria for technology in an M&A process and allows to rate each criteria by a monetary value in order to oppose a potential gap with the costs that would occur to close this gap. Modell developed is applied in an M&A business case. Conclusions from the application of the evaluation model, pros and cons are discussed and suggestions for future research work are made. 2. Research Questions: What are process steps in an MA undertaking and how technology need to be taken into account? What are typical interfaces of technology evaluation to other domains in the due diligence phases of an MA process? What are requirements for a technology evaluation in an M&A process? How are technology evaluation methods meeting the requirements in a technical due diligence of an M&A processes? How can those methods be applied and combined in a holistic technology evaluation model? What are criteria for a technology evaluation in an M&A process and how can they be evaluated in monetary values?