Ollie Dammone from Frazer Nash Consultancy joined Cyber Runway Scale to provide insights into M&A from a buyer’s perspective. He discussed due diligence, valuation, and integration challenges, offering founders a realistic view of the acquisition process in the cybersecurity sector.

On 13th February 2025, Ollie Dammone from Frazer Nash Consultancy led an insightful session on mergers and acquisitions (M&A) from a buyer’s perspective as part of Cyber Runway: Scale, a programme delivered by Plexal and supported by the Department for Science, Innovation & Technology (DSIT).

This founder-focused session provided an in-depth look at the M&A process, offering valuable insights into how acquiring companies assess potential targets, conduct due diligence, and navigate post-acquisition integration.

Key takeaways included:

• Why companies acquire and what they look for in potential acquisitions
• How the acquisition process unfolds, from initial discussions to closing the deal
• Challenges of due diligence and how to prepare effectively
• Common pitfalls to avoid when positioning your startup for acquisition

I attended on behalf of Cyber Tzar, the Enterprise Supply Chain Risk Management platform, to gain a deeper understanding of how cybersecurity startups can position themselves effectively for acquisition and navigate the complexities of M&A.

Contents

Perspectives on M&A with Frazer Nash 13th February 2025

This video is publicly available on the Plexal YouTube playlist for the Cyber Runway programme.

Why Do Companies Acquire?

Ollie opened the session by discussing why Frazer Nash’s parent company, KBR, pursues acquisitions. He made a key distinction:

• KBR acquires companies to do something different rather than simply growing existing capabilities or scaling up.
• Other types of buyers include finance houses, which acquire businesses to accelerate profitability, and large trade buyers like Accenture, which buy broadly across industries to expand their service portfolio.

For founders considering an exit, understanding the strategic intent of the buyer is crucial. If a buyer is looking for new capabilities, the value proposition must emphasise what makes the company unique, rather than just financial performance.

The Three Phases of an M&A Process

Ollie broke down the M&A process into three core phases:

1. The Process Phase (Legal & Financial Due Diligence)

This stage involves reviewing contracts, financials, and operational structures to assess risks.

• The importance of clean back-office operations: Buyers will scrutinise contracts, supplier agreements, and compliance with tax regulations such as IR35. Poor record-keeping or regulatory issues can slow down the process, even if they are not deal-breakers.
• Being organised from the outset makes a company far more attractive to buyers. Founders who have structured their business well and maintained proper documentation ease the burden of due diligence.

Ollie shared an example of a highly technical founder whose company had chaotic operations, causing major delays in the deal process. In contrast, another target company with well-organised documentation moved through due diligence much faster.

2. The Strategy Phase (Assessing Synergies & Market Position)

This phase focuses on understanding what problem the target company solves and which customers they serve.

• Companies that have previously worked together tend to complete M&A deals faster because both parties already understand each other’s capabilities and culture.
• The objective is to establish a compelling case where 1 + 1 = 5, meaning the combined entity will create significantly more value than each company operating separately.

3. The Deal Phase (Valuation & Negotiation)

This stage involves determining the final purchase price and negotiating terms.

• Buyers use a standard valuation model based on EBITDA (earnings before interest, taxes, depreciation, and amortisation), applying a multiple based on factors like market position, contract lengths, and revenue stability.
• For founders, the pricing phase can be highly emotional, as the price offered may not align with expectations. In some cases, deals fall through when founders feel undervalued.
• If multiple founders are involved, internal conflicts can arise. Ollie recounted a case where founders lawyered up, causing unnecessary tension and complexity.

The Realities of Post-Acquisition Integration

Once a deal is completed, integration can be challenging. The success or failure of an acquisition often hinges on how well the teams are merged.

• The size of the acquired company influences integration speed:
  • Larger companies may remain independent for longer, allowing time to assess cultural alignment before integrating.
  • Smaller companies are often fully integrated more quickly to consolidate operations.
• Cultural differences can lead to high attrition. Ollie cited a case where KBR built a space intelligence business through acquisitions, but 30% of employees left because they struggled to adapt to the corporate culture.
• The earnout period (where part of the acquisition price is tied to future performance) is often used to retain key employees post-acquisition.

What Makes Integration Successful?

Ollie shared an example of an acquisition that worked well due to strong alignment on values and a clear integration plan. The founder engaged their broader team early, ensuring that employees felt included in the transition rather than viewing it as a forced corporate takeover.

Approaching M&A: Working with Buyers vs Brokers

There are two main ways to approach a sale:

1. Working with a finance house (investment bank or broker):
   • They help with valuation, positioning, and negotiation.
   • They structure the deal process but can slow things down by inserting themselves between the buyer and seller.
2. Approaching a buyer directly:
   • This can lead to more open and productive discussions.
   • However, without a broker, the process may lack structure and take longer.

Each approach has advantages and drawbacks. Founders should weigh whether they need the guidance and structure of a broker or if a direct approach aligns better with their negotiation style.

How to Prepare for M&A: The Founder’s Checklist

One of the final questions raised was: How can founders prepare their company for acquisition long before a deal is on the table?

Ollie acknowledged that Frazer Nash has an internal checklist for assessing targets, but he could not share it publicly. However, the key elements include:

• Financial readiness:
  • Clear financial records, signed contracts, and a well-documented revenue pipeline.
• Legal compliance:
  • No hidden liabilities, clear intellectual property (IP) ownership, and compliance with tax laws.
• Operational stability:
  • Defined processes, strong leadership, and minimal reliance on a single individual.
• Customer and market positioning:
  • Clear differentiation, strong client relationships, and a well-defined market niche.
• Cultural fit for potential acquirers:
  • A leadership team that can transition into a larger organisation smoothly.

Many founders only consider these factors when preparing for an exit, but the best approach is to build the company with an acquisition in mind from day one.

Final Thoughts: Key Takeaways on M&A

The session provided valuable insights into the M&A process, the mindset of corporate buyers, and the challenges of integration. Some key takeaways include:

• Companies acquire to expand capabilities, not just to grow. Sellers should highlight what makes them unique beyond financials.
• Due diligence is a heavy lift. Well-organised documentation significantly speeds up the process.
• The price negotiation phase can be emotional. Founders should prepare for valuations that may not align with their expectations.
• Integration success depends on cultural alignment. Acquiring companies must carefully manage employee retention and morale.
• Founders should prepare for an exit long before it happens. A structured approach to finance, operations, and customer relationships makes a company more attractive to buyers.

By understanding the buyer’s perspective and preparing in advance, founders can navigate the M&A process with confidence and maximise their company’s value.