The technology sector is at the top of the ranking of M&As, angel investments and Venture Capital in recent years in Brazil.
Below are 3 important points for buyers and investors to consider in the due diligence process of technology companies:
1. Intellectual Property: if the acquisition is restricted to acquiring the code that comprises the product/service sold to the customer, it must be verified whether the target effectively owns the code. There are countless cases and that companies invest in R&D without registering the mastery over the developed technology;
2. Contracts with Clients: if the acquisition is limited (or includes) the target client portfolio, it is necessary to evaluate the contracts with clients containing clauses restricting the assignment and transfer, or change in ownership control, among others. It is common to find SaaS contracts, which are the basis of revenue, that do not give little legal certainty to the target in the relationship with customers; and
3. Retention of Target’s Talent: it is necessary to analyze if there are employees of the target that are essential for the delivery of the service and to review their employment contracts. If so, it is essential to structure the retention plan/contract for the main employees and include them nominally in the M&A negotiation, to avoid unwanted exits right after the closing.
If the listed aspects are part of the due diligence checklist, much of the risks inherent in investments in technology will be largely mitigated.