How to be the Perfect Acquisition Target

The Exact Blueprint for Making Your Business the Perfect Acquisition Target

When a company is acquisitive and begins to interrogate the market, looking for targets to acquire, what do they want to see?

What makes one company ‘hot’ while another isn’t even close to being in contention?

Obviously, the potential acquirer has in mind the type and size of business they are looking for, why they want it and how it will fit into their overall business strategy. But what can the software business owner do to ensure their company is attractive when it comes time to prepare for their own exit..?

Acquisition transactions are as many and varied as the number of business owners on the planet. However, there are still common themes which, if adopted, will serve the vendor of any business well.

Below is a blueprint of the most important elements an acquirer will look for prior to buying a business.  

All Acquirers look for these..

There are certain items you need to have in place well before you are ready to set off down the path towards your exit – In fact, most of them should be found in your very first “Business Plan”.

The plan that contained your ’why’ – Your reason for being. Also, the plan which contained your 3, 5, and 10-year vision for how the company would move forward over the years.

This same plan should also contain your “Exit Strategy”.

It’s critical you create a detailed Business Plan, which also incorporates your Exit Strategy. Because once you’ve committed it to paper (or Word doc!) it will inform your every action – and those of your shareholders and also your staff.

Every action you collectively take will be driven by that vision, towards your ultimate goal – Your Exit. Your reward for all the hard work over the years.

Is your business “Sale Ready”?

Before you begin any Exit plan, ensure all your shareholders are in accord; they understand the Business Plan and also have their post-acquisition life planned out. (Whether that means continuing to work in the company under new ownership or sailing off on a yacht – a plan is needed for this too.)

Debunking the Myth of Multiples

Whether or not you sell your business and whether the sale price will match your expectations won’t be based on some complicated formula of multiples of EBITDA.  Rather, the buyer will take into consideration several key factors:

  1. How effectively will the business operate without its business leader/s. For example, are the key customer relationships and key sales accounts dependent on the exiting executives?
  2. What management systems & processes are in place to facilitate the seamless transfer of ownership? - Without these, the business is less attractive as it means additional expenditure for the buyer, while also increasing their exposure.  
  3. What risk is there from the loss of key employees? This is important in terms of loss of productivity, loss of company IP and loss of essential expertise?
  4. To achieve a strategic valuation, you must have a strategic M&A plan that shows how the business will provide the new owner with growth and profit, while simultaneously increasing in value for years to come.

Understand your positioning

Ensure you have a clear understanding of who and what you are – This is who you are and what type company you currently are.  Where do your strengths lie? What is your current positioning in the marketplace? What is your value proposition? – Your future growth potential?

Know your competition

Have a clear and unambiguous view of your competition – It’s critical you’re honest with yourself about where you fit in this eco-system. When positioning your company for exit, it’s no time to overstate your strengths. To paint an ‘over-rosy’ view to a potential acquirer will, at best leave you looking ill-informed and naive or worse, disingenuous. Presenting a frank overview of the competition demonstrates your knowledge and expertise; it also allows you to outline your strengths against that competition.

Keep your eyes on the target

Throughout the sales process, maintain your focus on the business. Keep your business running like a well-oiled machine and do not allow the sales process to distract you from the daily operation of the company. This could result in a decrease in sales revenue – and ultimately, in a lower sale price.

“It ain’t over till the fat lady sings.” is a saying that’s particularly apt for the M&A process. With this in mind, commit to continuous improvement throughout all the debates & discussions. Your business will benefit, and you will be in a position of strength when negotiating the final sale price.

Timing is everything..

Do not miss your narrow window of opportunity by riding your business up and over the top of the bell curve.

It’s a sad fact that a majority of companies in the software sector sit back, passively, comforted by the fact that they have occasionally had speculative enquiries from opportunistic buyers. As a result, they are lulled into the false belief that their business is eminently saleable – and crucially, that it always will be.

No! Not in the software sector!

The pace of innovation and consolidation has always been fast but it continues to grow exponentially. We have observed no signs of this trend abating – even through a global pandemic.

You cannot afford to be complacent. The same people who called you with a speculative offer, also called another 50 companies the same day! It’s the game they play. It’s called “Numbers”.

Do not allow yourself to be seduced by the smooth-tongued, eternally flattering patter of such approaches. Their game can also be defined as “Pile ‘em high, sell ‘em cheap.” – A not-optional extra of the Numbers game.

You will end up with a sale at any price, that doesn’t reflect your company’s true value if sold to a strategic buyer.

You are selling the future, not the past..

Trade buyers and investors want to acquire when they can forecast a healthy and profitable growth, not when the growth has already become part of the company’s timeline.   

You have to make sure that you benefit from best timing when selling a business; if a space becomes ‘hot’ then valuations will be affected by supply and demand and can rapidly increase -often several times within a few short months.

Such micro market conditions can affect price, more than the fundamentals of the company, making particular solutions a premium buy as acquirers vie to acquire the tech and talent.

By planning your exit strategy early, you can ensure you are aligned with the macro and micro dynamics of your specific market and be ready to move quickly should the prevailing winds be in your favour.

In conclusion…

As Defence Secretary, Donald Rumsfeld, once observed at a US Defence Department briefing:

"We know there are known knowns: there are things we know we know. We also know there are known unknowns: that is to say, we know there are things we know we don't know. But there are also unknown unknowns — the ones we don't know we don't know."

In the context of the M&A process and selling your software business, work hard to manage the things you know and understand – and seek expert, tried & tested help for the bits you don’t know and understand – and especially for those pieces of the jigsaw you feel are missing completely.



If you'd like a confidential and informative conversation about your exit strategy, with Boss Equity CEO, Mark Edwards please click here