In the fall of 2018, customer relationship management company Qualtrics was preparing to go public. After a series of strategic acquisitions and successful fundraising rounds, Qualtrics was valued at around $2.7 billion, and its IPO was expected to bring in close to a half a billion dollars. Then, on November 11th, Qualtrics announced it had been acquired by enterprise software giant SAP in what would be the second biggest SaaS merger in history, after Oracle acquired NetSuite in 2016. The $8 billion purchase created a major shift in the experience management software market—one that many major players didn’t see coming.
This kind of billion-dollar acquisition represents a significant change in the competitive environment for everyone else. It’s exactly the sort of development competitors might hope to see telegraphed early enough to manage. But, how do you spot a merger before it happens? It’s not easy. Corporate executives involved in merger activity work very hard not to leak that information to the public, especially those of publicly-traded firms. Aside from Securities and Exchange Commission concerns about insider trading, word of a merger might cause key suppliers or clients to begin to bolt.
Let’s look at some signals that may identify a competitor is planning on selling out:
- Rosier Than Normal Press Releases: Companies that suddenly take on a rosier-than-usual outlook might be prepping for a merger. A 2018 study done at UC Davis, research found that companies with a more optimistic, strategy-focused press releases are more likely to be targets for acquisition. Executives trying to attract potential buyers will always try to put a positive spin on the company’s future prospects.
Uncharacteristic Silence: New muteness in public communication can also serve as a poker tell. The SEC expects firms to honor an informal “quiet period” in the 30 days before an acquirer files a registration statement. Out of an abundance of caution, many firms interpret this as a requirement to cease public comment altogether. So, companies who stop issuing press releases, cut back on social media dramatically or reduce marketing communications suddenly may be back in exit mode
- LinkedIn Employee Movements: Executives who receive early warning about an upcoming acquisition – folks in finance, accounting, operations and human resources in particular – may realize that they’re not going to be part of the merged firm. Often, they’ll begin to solicit recommendations, create new LinkedIn connections, and increase the number of industry groups they’re following. This also goes for management departures. A series of exits with no external replacements could be a sign of merger activity.
- Rumor Mill: The rumor mill has predictive power. Two researchers looked at news reports speculating on mergers over a 10 year period. The Wall Street Journal is right about 39 percent of the time, the New York Times is right about 29 percent of the time, while Barron’s and Businessweek are right about a quarter of the time. Although rumors should not be relied on solely on their own, it’s another data point to add to your analysis.
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