Earlier this week, Atlassian published its form acquisition letter of intent under the banner of The M&A Process is Broken: It’s outdated, inefficient and combative.
Atlassian shared the LOI with the market in an effort to eliminate time-and-expense of negotiating issues that, based on its experience and research, rarely come into play following the deal closing. By reducing such adversarial positioning, Atlassian hopes to increase collective focus on realizing the larger commercial, product and/or talent synergies that underpin the proposed deal.
In our experience, the M&A market already has prescribed a fairly narrow range of key deal terms. Arriving at a finalized term sheet is not often an agonizing process. Due diligence, in contrast, can be burdensome, particularly for founders, but the larger goals of the exercise typically extend to post-closing integration as well as risk mitigation. While streamlining the M&A process is a sound objective, we question whether the Atlassian term sheet will provide the necessary comfort to the corporate buyer, particularly given facts and circumstances of individual companies and specific deals. Deal points are judgment calls for buyers often driven by institutional perspectives on risk tolerance and compliance. In particular we note:
We expect that the Atlassian model will serve as a useful basis for continued debate on the merits of various approaches, but that many of its principle tenets will continue to be the subject of case-by-case analysis. Strategic buyers in the current M&A market continue to appear to be willing to offer purchase prices that generally exceed that of more conservative financial buyers, but also expect risk protection for pre-closing issues.