Realising strategic tech acquisitions in a volatile market

While dealmakers started the year with renewed confidence, persistent geopolitical tensions and an unpredictable worldwide economy have tempered M & A activity. However – so far – the technology sector has largely proved resilient driven, in no small way, by the explosive growth of AI.

As we move towards Q4, strategic buyers and investors recognising the potential offered by emerging technologies are hoping to capitalise on favourable valuations driven by those continued global uncertainties; at the same time, consolidators and scaling corporates are exploring capability-driven acquisitions with proven products and established revenue streams.

Any acquisition or investment is complex and demands strategic foresight, financial planning and a clear timetable to and beyond completion. Here are four key considerations any tech acquirer or investor should have in mind when weighing up a tech sector transaction.

Define the strategic objectives

Without a clear strategy at the outset, an effective post-completion integration will be exponentially more difficult. Different strategies will apply depending on whether the buyer is looking to acquire proprietary technology or onboard a talented team; or if it is hoping to expand into new markets or drive revenue growth through operational synergies. A buyer must ensure its underlying strategic intent is clear from the start and tailor its transaction process with that in mind.

Evaluate potential targets

Once the strategy is clear, potential targets should be married to that strategy.

While early-stage startups may offer innovation and pricing upsides, they will carry higher risk. Conversely, more mature businesses may provide stability and established processes but could pose integration challenges while carrying a premium.

On a more granular level, aspects to consider include the target’s product-market fit and customer traction, the scalability of its technology and its cultural compatibility with the buyer’s organization. Of course, financial health, IP ownership, and regulatory compliance are also critical factors and should be considered early in the process.

It’s fair to say that any buyer in today’s market should be prepared for some pricing volatility. While the global situation remains challenging and may drive favourable pricing, as interest rate cuts make debt financing easier and consolidators focus on cash generative businesses, increased competition for high quality assets is likely to be seen through Q4 and into 2026.

The tech due diligence triumvirate (and beyond)

Once a target has been identified and heads of terms entered, the buyer can start to dig into the business’ internal machinations.

A successful completion is far more likely if the transaction is supported by an effective due diligence process. While buyers should ensure they work through the usual due diligence exercises – assessing the company’s finances, its operational risks and its legal frameworks – three areas stand out as fundamentally important in tech acquisitions:-

• IP will likely be the most valuable asset being acquired, whether the target is software or hardware focused. Ensuring the target owns its code, patents, and trademarks is essential. Complications can arise from open-source software usage, improperly assigned developer rights, or pending litigation – issues which are compounded in sub-sectors such as AI where the AI’s code and training data will need to be considered. A thorough IP audit should be considered as a high priority.

• The company’s IP will (ideally!) have been developed by its people – its engineers, product managers and founders – and the company’s future value may be dependent upon those individuals continuing to dedicate their time to its development. A buyer should identify the key people and ensure that retention strategies, such as incentivisation schemes, bonus plans and cultural integration plans, can be put in place to preserve institutional knowledge and momentum.

• Finally, the business will be worthless if its tech doesn’t work! Deep technical due diligence is essential. A buyer should assess the codebases, security and scalability of the infrastructure.

Naturally the buyer should ensure its findings are supported and reflected in the transaction documents through warranties (and indemnities) and, if appropriate, that the consideration structure is tailored to ensure the retention of key talent and leadership.

Plan for integration

The acquisition’s completion is the start of the enlarged group’s operation. In tech acquisitions, post-completion integration can be the most challenging phase due to the need to align technologies, product roadmaps, and data and security risks.

A clear post-acquisition plan should be put in place early in the transaction and kept under review to address aspects such as leadership alignment, team onboarding, technology integration, brand strategy and customer communication.

• Whether you're a tech entrepreneur looking for investment, a multinational negotiating a strategic technology deal or you have an innovation you are looking to protect and commercialise, Mills & Reeve can help. For more information visit: www.mills-reeve.com