How to successfully sell your technology business
There is no denying there is a very strong cycle happening within technology M&A with greater leverage being continuously available and multiples on the rise. In the last two quarters however, valuations of listed tech firms have come down.
Fortunately, we still see lots of interest from investors and believe, technology driven businesses will stay in high demand.
Here are a few key steps for owners and managers to maximise the value of a company, prepare it for exit against a good price.
1. Specify your vision and detail the growth drivers for your business
Valuations are driven by the prospects of a company or a technology it exploits. What is the future of your business or technology? Where are you going? In what market will your business compete and win in 5 -10 years from now? Is there a compelling growth story? Detail it. Specify the drivers of growth and performance improvement. Don’t leave it to the (lack of) understanding of the buyer.
2. Optimise the valuation and understand the important value drivers
Understanding what the value levers in a valuation are, allows you to work on them before the deal. How much time do you have? Months or years? The basics are always the same. The timeframe determines how much you can do. One, drive profitable growth; Two, improve the quality of earnings; Three, raise your capital productivity; Four, reduce your risk profile.
Benchmarking your company with similar ones is helpful to create a clearer picture of its relative attractiveness and its upside potential.
3. Perform self-due diligence
Avoid nasty surprises when exiting your business. Any investment process will include a due diligence on financials, tax risks, legal risks, technology, strategic situation, and business ops. Therefore, it is important to identify AND tackle surprises, which can potentially negatively impact the transaction, before the start of the formal sales process.
4. Select the best owner for your business
There is more to the sale of a company, often built from scratch, than a its price. It is important to profile your preferred buyers on a qualitative basis. Especially if you decide to stay active within the organisation after the sale and reinvest part for your sales proceeds or want a good home for your legacy. Make a list. Actively approach your preferred buyer and build relationships long before you decide to sell.
5. Always be selling
Work on your company, not in your company. Continuously devote your efforts to double down on your vision, improve your value drivers and build relationships with preferred buyers. Invest in a good mix of experienced hires and talent, that substitute you in leading Sales, Customer Success, R&D and Operations. Prepare a preliminary “data room” with important documents concerning legal, tax, financial and operational matters. Being ready always, ensures optimal outcomes for all parties involved.