Author: Anthony Caruso, Investment Partner
The decision to sell your software company is an important one. It takes years of effort, time, and energy to build a business, keep customers happy, maintain pace of innovation, and preserve your company culture. The decision to sell – and who to sell to – should not be taken lightly. Selecting the right buyer is difficult – intention, business philosophy, and investment thesis can vary greatly, and information is often presented through a distortion field which can be hard to decipher.
Over the course of conversations with founders and business leaders over the years, we’ve found that there are some notable questions most founders rightfully ask of a prospective buyer:
- What are the specific needs of my business?
Additional Human Capital: Determine if your business requires additional resources or human capital to scale up crucial departments like sales, marketing, and R&D. An M&A partner should offer support and expertise in these areas to ensure seamless integration and accelerated growth. If the business had additional resources in sales, would it be able to accelerate organic growth? With more support agents, would customers feel more taken care of?
Additional Investment: Consider whether your business needs extra capital for sales and marketing initiatives or product development. An M&A partner with a proven track record in funding successful campaigns, trade shows, and digital marketing efforts can provide the financial boost necessary for expansion. Would an acquirer with a dedicated digital marketing team help propel the company’s new logo acquisition at a lower cost? Would my business benefit from increased R&D velocity to help push new products to market?
Geographic Expansion: Evaluate the potential benefits of international expansion and assess your capabilities in planning and executing it. A partner with pre-existing infrastructure in target markets can significantly expedite the process, ensuring a smoother transition into new territories. Would it be feasible to leverage these teams in new markets in order to more quickly internationalize the business?
Customer Network: Explore the possibility of joining a network with an overlapping customer base. A partner with valuable relationships can open doors to new opportunities and a more cost-effective growth strategy. Could these pre-existing relationships with potential customers help accelerate growth for the business?
Shared Services Support: Consider whether your business could benefit from delegating administrative tasks. An M&A partner that offers shared services in areas like accounting, HR, and legal can free up your time for more value-added tasks, such as product management and customer relationships. Would centralizing accounting, HR, and legal allow for more time spent focusing on product and customers?
Peer Network: Consider the importance of having a network of like-minded entrepreneurs as peers. Would it be helpful to consult other business leaders within a collaborative ecosystem to reinforce decision making? A supportive community can contribute significantly to your post-acquisition experience.
- Are the acquirer’s values aligned with my own? What plans do they have for my business?
Post-Acquisition Role: Clarify your ideal role post-acquisition. Whether it’s immediate retirement, a 6-12 month transition, or staying on long term, ensure the acquirer is flexible and willing to accommodate your preferences. Should you wish to exit the business in the short-term, does the prospective acquirer have the resources and industry know-how to properly care for my customers?
Employee Growth Opportunities: Consider the growth prospects for your employee’s post-acquisition. Will they have upward mobility and career prospects, or will it be business as usual? A supportive acquirer should prioritize the well-being and development of your team. Does the potential acquirer have any employee success stories showing career growth & upward mobility?
Preservation of Culture: Determine the cultural fit that aligns with your vision – express how important it is to maintain the company’s DNA. This may mean choosing between an entrepreneurially minded environment or a more hierarchical, corporate ecosystem, ensuring the cultural shift aligns with your business ethos. Company culture is often one of the main drivers of employee happiness – if the potential acquirer has values which differ from your own, how will employees react?
- What does my ideal post-acquisition outcome look like in the short-term? In the long-term?
Corporate Structure and Reporting: Define where your business will sit within the acquirer’s corporate structure and identify who you will report to. Clarity on these operational aspects is crucial for a smooth transition. Ensure that you can meet and get comfortable with the individuals your will report to post-acquisition. Are their interests aligned with those of the company? What are they incentivized towards?
Operating Model: Decide on the operating model that suits your business. Whether it’s a centralized approach with decisions made at a corporate level or a decentralized structure retaining agency at the company level, align with a partner that complements your preferences. A decentralized approach ensures that the decision-making and subject-matter expertise stays at the company level – how would my employees and customers be affected should the potential acquirer centralize decision-making at their HQ?
Branding and Business Integration: Consider whether you mind if branding changes or if your business gets rolled up as part of a larger entity or product offering. Communicate your preferences to ensure a smooth integration process that respects your brand identity. How would customers react if the branding or identity of the business were to suddenly change?
Business Continuity: Express your concerns about the business changing hands after the acquisition to yet another buyer. Determine whether you seek a permanent home for your business and if the acquirer’s long-term objectives align with your vision. Investors with a short-term horizon will look to maximize their return upon selling the business in 3-5 years – should the business continue to change hands; how would employees or customers react?
Investment Thesis: Understand the investment thesis of the acquirer and assess whether it aligns with the best long-term interests of your employees and company. Look for an acquirer with a strategic plan that ensures sustained growth. Understand the main pillars of the potential acquirer’s thesis in acquiring your business – what do they hope to achieve and how are they driving their investment return?
All things considered, a successful M&A process should involve careful consideration of many of these factors, ensuring a strategic fit between your business and the potential acquirer.
Selling your software company isn’t just a transaction, but a partnership that propels your business to new heights.
By addressing these aspects, you can choose the right buyer to help you navigate the M&A landscape with confidence, ensuring a prosperous future for your business and employees.
About the Author:
Anthony Caruso
Investment Partner
As Investment Partner Anthony leads a team focused on acquisitions and driving end-to-end M&A activity. He uses his expertise to evaluate prospective strategic targets to Valsoft’s acquisition strategy, including origination, valuation, negotiation, and due diligence. His proven track record includes successfully closing over 20+ high-quality software businesses that fit Valsoft’s vision for growth.
Prior to joining Valsoft, Anthony successfully delivered large-scale capital projects and assisted in reducing risks and achieving the best value from capital projects at Deloitte.
Anthony received his MBA in Finance from McGill University.