Q&A

Written by Klaus Enke

I have been approached with an offer to buy my software company. What should I do?

In most cases, this will not be your best offer or your most strategic buyer. It is often in the shareholders’ best interests to get competing offers in play. We can evaluate your offer and determine whether it is competitive, or whether we believe that you could do better. If you’ve received interest from a potential buyer, we can help you get the best terms and value for your company. Let’s talk!

How long will it take to sell my business and how much time will I have to commit?

Expect about 12 months for the entire sale process, from the time you engage a specialist advisor to completion. Although we have completed deals in a matter of months, this is not the norm. We allow three months for preparation before we even begin to approach potential acquirers. Here are the typical stages of a sale:
Preparation of marketing materials: This usually takes about two to four months and your typical time commitment is three to four days, spread across interviews, gathering information, and reviewing and approving marketing collateral.
Identification of potential buyers: This usually runs in parallel with the previous stage, and since you need to review and approve the list, you will need to commit about a day of your time.
Go-to-market campaign: Contacting and qualifying buyers usually takes about two to three months, and you would typically need to commit two to three days of your time for conference calls and meetings.
Receiving and negotiating LOIs: For one to two months, we will run the auction and select the preferred offer. This will require two to four days of your time to discuss and review the LOIs.
Due diligence: This stage takes two to three months and is typically the most demanding time, since the buyer is investigating your company in tremendous detail. Be prepared to put in one or two weeks at this stage.
Legals and closing: Finalizing the agreements and closing the deal takes approximately a month, and your legal counsel will demand a significant portion of your bandwidth, as they will need you to review all agreements.

What is my software business worth?

The value of your specific company will depend on a number of factors, including not only the financial factors such as quality of revenue and earnings but also the size of the potential market for your products, your company’s market share, competition, your customer base, your technology, distribution channels, the skill of the work force you have in place, and a host of other factors. Having said that, at the end, a company is worth what a buyer is willing to pay. All buyers have a range of value they would be willing to pay and in the absence of competition are predisposed to offer at the lowest end of their value spectrum. However, in the presence of competing parties, buyers are motivated to raise their valuation to the highest end of their range for reasons that are as unique as their company strategies.

Why do I need an M&A professional?

Selling a business is unique. It is a complex mix of critical responsibilities including guarding confidentiality, selling strategic value, precisely preparing and timing the release of information, and negotiating to balance the interests of the seller and the success of the transaction. When sellers act alone in the sale of their companies, chances are very high the transaction is set up for failure because the buyer’s intentions were not properly qualified, some key facts about the company were not disclosed early enough in the process, some fundamental business terms were not clearly defined, the transition of material relationships were improperly handled…there are a litany of reasons deals go off the rails when the parties entering the transaction do not plan carefully and fail to anticipate roadblocks in advance. On the sell side of the transaction, it takes around 1,000 hours of focussed effort to successfully close the sale of a mid-market software company. Without the help of an M&A professional, that means devoting more than 80% of your time over the better part of a year to sell your company. That’s a risky (if not impossible) proposition for a seller acting alone, especially when the chances of closing are far less than 50% without the help of an M&A specialist.

Please explain your remuneration structure?

Our compensation comes primarily from success fees when a transaction is completed. If a transaction is not completed no fees are charged. In addition, we charge a monthly retainer that primarily serves as a commitment from you that indicates your seriousness about pursuing a transaction. We operate on a thin, efficient but highly scalable model, no different from the clients we represent. If we can’t add value we won’t take the engagement. Our fees are performance-based and results-oriented, which means that our interests are aligned with yours. By adopting a lean approach we keep our costs low and we pass those savings on to you. Pay for your success, not our office.