Recently, a vertical GovTech SaaS company with $3 million in revenue, most of which was recurring, approached Corum to go to market. The founders had run the company for over two decades and were now ready to sell out. Using Corum’s 8 step process, we were able to achieve an Optimal Outcome for our client. Let me explain.
The key to getting a good valuation for your business involves mapping your company to the major trends driving tech M&A activity. Our global research team leverages Corum’s M&A database, the world’s largest in the tech industry, along with respected third-party sources and a team of senior dealmakers (all former tech CEOs) to publish the Top 10 Disruptive Tech Trends report every year.
Financial and strategic buyers are eager to add Macro Resilient firms, companies that remain profitable throughout the economic cycle, to their portfolios through platform acquisitions and bolt-on deals. GovTech firms with strong product offerings are in high demand right now and are receiving good valuations.
What makes GovTech firms appealing to buyers is that these companies have stable, recurring revenues from a customer base that needs productivity-enhancing solutions. It’s difficult for government agencies to retain talented employees due to payroll limitations and as the workforce gets older and retires, that causes an exodus of experience that’s difficult to replace.
Ensuring that the strategic value of your company is communicated effectively to buyers is another key aspect of the Corum process. We work with you and your company to develop a well-rehearsed presentation that starts off with an armor-piercing soundbite to clearly convey the opportunity your company offers potential buyers.
Great writers get great results, which is why Corum has a team of experienced writers that create a Teaser and Executive Summary of your company that are used during the outreach process. The anonymized Teaser grabs the buyer’s attention with the armor-piercing soundbite and overview of the opportunity while the Executive Summary provides greater depth on why the buyer should make a serious offer for your business.
Buyer outreach is a complex process that involves determining the order in which these firms should be contacted, the communication tactics that are utilized and which measurement statics will be monitored to gauge interest. Using Corum’s database and extensive connections in the industry, we identified 120 potential global targets for our client and began making calls.
After reaching out to those possible buyers we saw substantial interest in our client, resulting in 15 NDAs and 9 management presentations. Sellers must use a global outreach process as this is essential when creating an auction environment. Spreadsheets don’t create real business valuations, buyer tension does.
This process resulted in six parties participating in the pre-letter of intent data room. Corum gave those interested buyers two weeks to send in an LOI so the interested parties would have enough time to meet with our client’s management team again while ensuring the M&A process ran smoothly.
Of those 6 interested parties, 4 opted to submit an LOI. The first submission came in at $7.5 million from a European PE firm, a financial buyer, looking for a platform acquisition. Submission 2 came from a US buy-and-hold PE company at $9 million, Submission 3 came in at $9 million from a PE-backed strategic enterprise and Submission 4 came in at $13.5 million from another PE-backed strategic firm.
Corum opted not to counter Submission 1 as the offer was too low and we didn’t counter Submission 2 either as they didn’t offer any strategic advantages to the seller, indicating they wouldn’t pay up for the firm. For Submission 3 and Submission 4, Corum countered both offers at $15.1 million that included a more favorable deal structure for the seller.
Strategic buyers have the most to gain from acquiring your business and are willing to pay higher valuations. While PE firms are financial buyers, PE-backed platforms that are pursuing bolt-on deals via strategics are willing to make offers that are competitive and incorporate the advantages that the M&A opportunity will create.
The firm behind Submission 3 moved their offer up to $12 million and accepted the revised deal structure terms, while the company behind Submission 4 accepted the $15.1 million counter along with the revised deal structure terms. What we’ve seen is that sellers which use Corum’s Optimal Outcome process on average receive a 48% higher valuation than what the first bid offers, and in many cases more than that.
Corum took advantage of the competitive bidding process to ensure the seller got more than just a higher valuation. By making counteroffers, the seller also benefited from a more favorable deal jurisdiction, reduced fundamental warranty terms and lower IP warranties along with an improved transaction structure.
We can’t stress this enough, creating an auction environment and not accepting the first deal that comes across the table is essential to maximizing the value of your business. Competitive friction is how sellers gain leverage in the M&A process. The client was willing to accept one of the $9 million offers and would have left $6.1 million on the table had Corum not been there.
After spending over two decades growing their business, the sellers were able to use this process to get an all-cash offer that set them and their families up for life. Reach out to Corum when you are ready to sell your tech business to find out how you can achieve an Optimal Outcome.