Recipe for M&A success
Gabriele Jansen, owner and managing director of Vision Ventures, gives her advice on what makes a successful merger and acquisition transaction
Should I sell?
To answer the question, let me first briefly talk about the owner’s motivation to sell their company. Typically, transferring a company into the hands of a new owner is associated with an exit scenario, meaning the owner wants to sell because they want to retire from the company and there is no natural successor. Until a couple of years ago, this was the main reason to sell in the vision industry. Today, however, more and more often there is an entirely different motivation from the seller’s side: selling the company as proactive growth strategy.
The company founders have developed the company, the technology, the product range and have generated traction in the market leading to a stable company size. Eventually, though, the next growth step requires financial investment, and management skills and experience are needed that the founders do not necessarily have. This might be experience in establishing a global distribution network, the expertise to redesign the production line for efficiency, or the skills for diligent cost management. Here, the owner needs external financing and additional management bandwidth. A very efficient way to get both is in joining forces with a larger player from the same or an adjacent market. In this case, the owner decides on a trade sale with the full intention of staying with the company and enjoying the growth and success that comes with being part of a larger entity.
When is the right time for an M&A transaction?
Right now is actually a great time for transactions in the vision space. The core technology is mature, but at the same time there is still huge potential for innovation. There are a lot of low-risk, established markets for vision products with annual growth rates of 10+ per cent, but also markets entirely untapped and ripe for conquering where annual growth rates can be 50 per cent or more.
For the company seller, a trade sale can significantly ease market access through the buyer’s existing infrastructure or its financial and operational support. For the industrial buyer, the acquisition will shorten time to market, with new products or technologies for its existing sales channels. And, for the financial investor, vision is a highly attractive market segment with Industry 4.0 as growth driver and Industry 5.0 on the horizon as the next booster.
From the individual seller’s point of view, the right time for a transaction is, of course, based on the motivation to sell, but also strongly connected to the company’s readiness for sale. The right time to make the first steps towards a transaction is ideally around one to two years before the actual sale, and again ideally around three to five years before the seller himself would like to exit the company.
What should a vision SME consider when preparing for M&A activity?
A company preparing for M&A activity needs to have a good organisational structure, with second level management in place; financial and IP documentation in place and accessible; and market assessment and sales planning both defined. For an SME, which can have restricted resources, this is a challenge; it requires time and attention to prepare the company and manage the process, while at the same time making sure the business doesn’t suffer as a result.
It also needs to be understood that an M&A transaction is a highly complex project that involves a range of different skills and specific expertise. For most company owners, an M&A transaction is a once-in-a-lifetime experience and arguably the biggest project the company has ever had. For all these reasons it makes a lot of sense to enlist the help of an experienced M&A project manager – an M&A boutique or investment bank – to improve the chances of success and allow the company to continue its operation as untroubled as possible.
What is specific about M&A activity in the machine vision sector?
Obviously, buyer and seller are looking for the perfect match in a transaction. The seller – in the vision industry, in most cases, the founder of the company – wants to ensure the company’s future and the employment security for their team. The buyer wants a smooth integration, wants to raise the identified synergies, and wants a dedicated and happy team that will stay with the company. None of this is necessarily specific for the vision industry.
The particular challenge in reaching these goals in the vision sector is the complexity of the vision ecosystem, which is very heterogeneous, covering a whole food chain from the image sensor to the turnkey machine. It is global in nature, but consisting largely of small and even tiny players. Thus, it is an art to find the perfect match between a buyer and a target, or between a seller and the perfect acquisition. It needs an expert with a thorough understanding of vision technologies, and a broad and deep network in the industry that covers imaging, machine vision and computer vision across Europe, North America, and increasingly China, to facilitate this.
What makes machine vision companies attractive to a buyer?
Machine vision is a core technology for Industry 4.0 and the industrial internet of things (IIoT). Computer vision is important for autonomous navigation, logistics, precision farming, smart cities, and security, to point out only some of the emerging fields. The business potential is mind-boggling over a vast variety of industries. The vision ecosystem is driven by agile innovative SMEs with a lean and efficient structure and talented teams. Who would not be interested in that?
Buyers come from very different backgrounds: larger players in the vision ecosystem strive to grow, not only organically but also through acquisitions; automation and sensor companies want to augment their product portfolio, especially in light of Industry 4.0; machine builders have a growing interest to own vision as a core technology and a key differentiator to their competitors; manufacturers of smart products want to shorten their time-to-market by acquiring IP and talent; and, last but not least, financial investors from venture capital firms through to private equity companies and family offices are attracted by the high growth potential of the field.
How do you get the best deal?
First and foremost, the best deal is to be found with the best partner – the target company and the acquirer that fit together best. To identify this match you have to identify what ‘best’ means for you. A buyer might want to start by designing a vision acquisition strategy that clearly lays out what type of company fits their needs in terms of product and technology, but also in terms of customer markets and regions, company size, type, structure and culture. A seller must be very clear about the company’s strengths and weaknesses – as they would appear to the buyer – to be able to identify which type of buyer would be most attracted. This is the buyer with the best valuation and the best future home for the seller’s team.
Beyond this crucial initial step, there are numerous considerations on the path to the best deal. Let me point out two with significant impact: firstly, the purchase price is definitely not the only consideration. The contract has a lot of fine print that can either sweeten the deal or turn it sour. Secondly, pay attention to the cultural differences between a typical founder of a high-tech SME and a typical buyer with either a corporate or an investor’s mind-set. There is a lot of opportunity for misunderstandings along the way when going through the letter of intent, due diligence and contract negotiation, because of differences in background, expectations, corporate culture and, as is often the case, language and national culture. Having an ambassador in between can save both sides a lot of time, money and nerves.
Vision Ventures is a boutique M&A advisory for company buyers and sellers specifically in the machine vision and computer vision markets. The firm has managed transactions for Odos (acquired by Rockwell), HGV (acquired by Carl Zeiss), Tiama (divested several business divisions), Awaiba (acquired by Cmosis) and Ambienta (Lakesight project), among others.