Andrew Weaver CEO at www.lawyerfair.co.uk The legal procurement & comparison service for business owners
14 steps to Selling a Software Business
As part of our occasional series of blogs about selling a software business, we look at some of key issues to consider, particularly when selling a software business;
1. Always be prepared to sell. Technology moves so quickly that you may get approached out of the blue and without some basic M&A readiness, your value could be affected;
2. Keep the books upto date Make sure your books are up to date and accounts are in good order. Check whether your accountant has deal experience and whether he knows his M&A onions from his M&A potatoes. Inexperienced advisors can cost you badly and in some cases, blow perfectly good deals;
3. Always be on top of projections and make them credible. Buyers may not hold you to projections because that’s just what they are but, your credibility is on the line if you create something that is poorly researched and/or simply too optimistic. Think about doubling the length of time and halving the amount of revenue – at least within an alternative sensitivity analysis;
4. Always keep your cards close to your chest about a potential deal. Deals can unsettle stakeholders and many fail to complete and in that scenario, you definitely don’t want to have created employee, supplier unrest for no reason;
5. Don’t over stress about value. Fast growing technology companies are notoriously difficult to value so prioritise about improving the value not about the number itself;
6. Buyer is good fit for you? Think about your perfect buyer and start to align yourself with aspects of their business so the acquisition has a better chance of being seen as an ideal fit;
7. Concentrate on legacy products Always move forward with products and be brutal with those not driving profit any longer, so called ‘legacy’ products. Many businesses lose sight of exactly which products drive their margin and maintain some which loss is making;
8. Be realistic about Price If approached, don’t be unrealistic about price expectations and consider de-risking your position. Who knows when the next offer might come? Many vendors have rejected offers that in due course turned out to have been very attractive. Sometimes with M&A, it’s better the bird in the hand …;
9. Make sure all your contracts, supply agreements, IP are in good order. Worse situation is to agree a deal and then suffer through due diligence as the buyer starts to pick holes in the security of your revenue streams and business model. This is all part of ongoing preparation;
10. Develop partnerships Keep developing strategic partnerships, particularly with bigger brands. This forms part of your commercial barrier and helps to cement the future revenues of your business for a buyer;
11. Concentrate more on business than selling Always keep working the business, driving the numbers and never assume any deal is in the bag until the fat lady sings. Even what appear to be rock solid deals can fracture for any number of reasons and you need to make sure you’re still driving forward that business as if the deal is never going to happen;
12. Focus on Milestones Further, keep driving the business towards clear milestones and targets. Buyers like to see a road-map and story;
13. Handover BD plan Be prepared to hand over your own strategic BD plan to a buyer. Noone knows your business better than you and buyers will be delighted to get your insider knowledge, whether you stay with the software business or not;
14. $ $ $ Hope for cash but anticipate some form of earn out, deferred and/or ongoing role.
15. Finally, find the right lawyer … Going back to find the right advisors, the right lawyer is crucial for getting that deal away and protecting your value. Don’t just go with the firm you’ve always used or the lawyer your networking group recommend. Find a deal savvy lawyer with experience in your particular sector. Use www.lawyerfair.co.uk to find expert lawyers and get them competing against each other for your work.