​Bruce Milne

Thank you, Steve.

All of these speakers have been CEOs and have built their own software company and sold it, so this is sage advice.

Now let’s move to the Midwest and hear from Rob Griggs.

Rob Griggs

A quick way to gauge a potential buyer’s interest or intent would be to discuss their due diligence checklist.  As a well-prepared seller, you have already established as many of the basics of a list already, and to ferret out whether they are just asking versus are truly prepared to have serious discussions about acquiring you can make a few key things clear:

1.   You are knowledgeable about the acquisition process

2.   You have potentially had other discussions, based on your representation of knowing what the logical next steps are in the process

3.   Depending on their response you will know whether they are serious, ready, willing and able to proceed to a more detailed discussion

Your time is very valuable, don’t waste it on inbound inquiries where the acquirer isn’t serious about proceeding. Getting a checklist from a buyer can help make this clear, and will provide you with a better understanding of what you will need to prepare if discussions do go forward.

Bruce Milne

Thanks, Rob.

Remember, this is the most important transaction of your life. I think the important word there was “serious.” If you show them that you are serious, they will reflect that in their actions and show you that they are serious, too.

Now to Dr. Ivan Ruzic on the East Coast.

Ivan Ruzic

When an acquirer approaches you, they will typically ask for as much information as you are willing to share. Of course, this includes your financials.

If you don't already have them, you will need to quickly prepare three years of historical financials and a three year projection. Remember, the acquirer needs to understand what your business could look like as part of their operation, so consider the financials from their perspective. You may want to recast to remove extraneous one-off items that don't accurately represent your business going forward. This is where advice from an experienced M&A advisor will be invaluable.

Summarize by quarter, and provide only the minimum detail necessary. At this stage, your objective is to get to a quick “Yes” or “No.” Make sure that you include clear and concise explanations of both your historical financials and your projections - and ensure that you and your pipeline can support them. You will be asked to provide detailed monthly data at a later stage.

Don't be too aggressive on your projections, as they will be tested during due diligence. If you fail that test, your credibility will be damaged, possibly irreparably, and so will your valuation.

Bruce Milne

Be very careful on these projections. Year three will be critical, because that is where we determine terminal value, which will be used in discounted cash flow, which is one of the most common methodologies used by all by companies, especially non-tech buyers. 

This is a segment from Tech M&A Monthly: When You Are Approached - 12 Tips to Ensure Deal Success (December) webcast. For more information, please visit Corum Group's Software M&A Webcast Archive