The new way for M+A

There is a global liquidity boom underway. A published report by Thomson Financial indicates that global mergers & acquisitions in 2006 topped $3.8 trillion. This is a record pace.

Transactions are also expanding in purpose and accelerating in time-to-market. Today's transactions encompass everything from mergers of businesses and acquisitions of companies and assets to distribution and OEM agreements, alliances and partnerships, and joint development agreements.

In addition to holding great promise, all these transactions have something else in common: fear of the unknown.

These transactions include variously definitions, representations, delivery schedules, benchmarks, escrows, and other formal business and legal terms and conditions. They are designed to solidify the relationships that are the basis of the transactions and increase the amount of comfort around the unknown.

This is the reason why parties perform due diligence before consummating these transactions.

More specifically, transaction facilitators – in some cases deal makers – have to become attuned to hosted software audit solutions. Many investment bankers, venture capitalists, lawyers, auditors, and others do not realize that software due diligence by independent firms can and should be augmented with due diligence via software and service solutions. While many transaction facilitators use BlackBerries for email, cell phones for calls, and laptops for mobile computing, a hosted code audit is new to them.

Acquirers and investors are actively insisting on Black Duck Software to vet these transactions. The originators or facilitators of these transactions are beginning to understand that a small increase in costs is insignificant compared to the insights they gain from a hosted due diligence service for software assets in play. Like other SaaS offerings, this is an exciting new area filled with early adopters. Since time is the most valuable asset of deal makers and transaction facilitators, using a hosted due diligence service seems like a no-brainer.

I think we are at the beginning of new dawn in financial markets, transactions, and software solutions. It’s really cool and gratifying to be part of the solution.

P.S. Larry Augustin has some interesting data points on his blog about venture funding for open source companies. The preceding comments apply to VC-investing as well.