Common M&A Myth – “We can’t sell because we’re not profitable”

One of the most common mistakes I see executives make when considering an exit is thinking that they need to be profitable to garner interest from buyers. While it certainly helps, profitability (or the lack thereof) rarely determines the success of an exit.

 

Most tech companies run deficits early on due to reinvestment. Serious buyers seldom worry about that. They are more concerned with what acquiring your company can bring them in the future. This means that they care more about the synergies that arise from acquiring your product or technology, your domain expertise (and especially your team), your user base, your channels and your geographic and market coverage.

 

Of course, buyers will care about related metrics such as your growth potential, competitiveness, barriers to entry and your customer retention rates; as these are all useful measures of the inherent scalability of the business and your execution efficiency.

 

All of these are more relevant to a potential buyer than your profitability. Here at Corum, we’ve closed several multi-million dollar transactions with companies that had little to no revenue – let alone profitability. The buyers didn’t care about that – they were looking to the future.

 

Each business is unique and so is its marketability. To achieve an optimal outcome, you need to showcase what makes you unique and valuable, not necessarily what makes you profitable.

 

 

So if profitability isn’t the most important value indicator to buyers, how do you sell them on your potential? That’s where your advisor comes in. What distinguishes a great M&A advisor from the rest is their ability to sell this potential synergy to the buyer. I blogged about this topic at length earlier this year – check it out here.

 

Posted by , Vice President on 18 May 2017
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