After years of hard work and dedication operating and growing your software company, you are receiving calls and emails about a potential acquisition of your business. You may have never thought of an exit strategy and you may not even be thinking about exiting now but it’s always good to be prepared for a sale. You never know when a potential buyer can knock on your door with an opportunity to you, your company, team and customers that may seem too good to pass up.
Before you seriously consider a sale, we believe you should reflect on these five elements of your software company.
Before going into discussions about valuation, understand how much your software company is truly worth. You’ll want to open your books and be an expert on your own numbers – revenue, recurring revenue, customer and employee retention, and P&L forecasts. Also, you should research your industry and know where your business ranks, and estimate how much of the market share you own in comparison to your competitors. Furthermore, keep an open mind when listening to buyers and listen to the factors they look for when evaluating a software company.
Different buyers will be looking to acquire your software company for different reasons. First, you need to know your software company’s strengths and challenges so you can properly articulate how those attributes will greatly benefit or be addressed by prospective acquirers. It could be generating revenue, growing the customer base, having the best products, or maybe it’s expanding into new markets and market penetration. Once you identify what are the most important factors to their business, you can begin to “sell” your software company to prospective buyers and align your goals and missions.
Before you begin meeting with prospective acquirers, know what kind of home you want for your software company and identify why they want to acquire your company. You will probably want to look for an acquirer who will take care of your employees, customers and have a vision for your product. Many acquirers will look to save on costs and get a return on their investment as soon as possible by laying off staff. At CORA, we honour your legacy and will take care of your customers and staff post-acquisition with a business as usual approach. Our goal is to ensure your team and clients can rest at night knowing that you have found a good long-term home for them.
Before you consider a sale process for your software company, you may want to prepare for a realistic acquisition cycle. Try to speak with your peers and competitors who have been through the acquisition process to understand what is involved, what resources to call upon, and information to have prepared and familiarize yourself with the stages of an acquisition. If you are waiting to sell because you want a higher valuation, keep in mind timing is everything. The right time will vary for each company as it is all circumstantial and it is hard to know what the future will hold, especially in the fast moving software industry. For example, is your company is at its peak capacity and could benefit from additional resources to grow, or conversely is the company somewhat distressed and needs guidance and capital to recover and rebuild.
In the end, the acquisition process can go as quickly or slowly as you would like. At CORA, our dedicated Mergers & Acquisitions team go at the pace of the seller and is ready to help at each stage of the acquisition process. The typical process lasts 8 weeks from the date a letter of intent is agreed between the parties.
Think about what you want to do post-acquisition. It’s not always easy to figure out what you want to do next but giving it some real thought is important so you can select the right buyer who will be able to provide you an opportunity to achieve your goals. Perhaps you want to stay on managing the business in your current role, you may want to start a new project within the business, learn a new part of CORA’s business model to apply to your vertical market, start a new venture outside Jonas and even move toward retirement in some cases.
As an owner, time and resources are sometime tight so it may be tough to do the research internally and externally to reach an accurate valuation for your company. CORA Group can help you through this, starting with a high-level conversation with our M&A team who can answer any of your questions. We can get you started by thinking more about the right direction for a sale in the near future or down the road when timing is best to sell your business.
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