State Bar of Texas: Anatomy of a Technology Transaction

Introduction

It’s 2019 and nowadays almost every business has some technological or data component that is critical to its profitability. So, what makes a tech deal different from a standard bricks and mortar deal? This article assumes  you are familiar with basic M&A principles and addresses a handful of concepts that are unique to Technology Transactions.

Consideration

What’s being paid to get the deal done? Most of the time, cash, stock or a combination of both are used as consideration in tech deals, although I have seen other types of quirky forms of payment, such as cryptocurrency, source code, or even automobiles. If cash is used as consideration in the deal, the deal is somewhat simplified (yet you’ll still find elaborate payment structures with earn-outs), but frequently in tech deals, Buyer stock (combined with cash) will be used as a form of payment to incentivize both the Buyer and Seller to ensure in the post-closing success of the Acquired Company to the Buyer. Because of this, the Seller or Acquired Company should also exercise the same level of due diligence on the Buyer to ensure that the value of the Buyer stock is preserved.

By: Aaron Woo, Partner

Read more at The State Bar of Texas International Law Section.

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