Proof, the ability to demonstrate with documents and data that your company is actually the attractive acquisition target you present to a potential buyer, is crucial in closing a deal, according to Ryen Leyva, CEO of Infinity Software. Leyva stresses that building that base of information needs to be done as you're growing your business, not later when potential suitors for your company are asking for it.
Leyva puts it this way: "Take the time to focus on structuring and building practices and procedures in the business. Because when it comes time for due diligence, people will be asking for all these documents and all this information. If you don't have it, it's going to be really uncomfortable. But if you're building practices while you're growing your business, it will all be there when they start asking."
That advice was given by Leyva in response to the question, "What advice would you have for entrepreneurs in the audience who might be thinking of bringing their company to market and exiting?" Leyva, who with Corum's assistance, sold Infinity Software in 2021 to software company Aquila, was one of the panelists in a recent Sellers Panel discussion hosted by World Financial Symposiums (WFS).
Here are some other pieces of advice that Leyva offered to prospective sellers.
Set your goals and don’t settle for less
Leyva was in an interesting position. Infinity Software did not really need to be sold. Small ‒ fewer than 100 employees ‒ and family-owned, Infinity Software was a successful business. It was a leading provider of software solutions to alternative credit lenders, and had 30 percent year-over-year revenue growth over the previous five years.
Leyva's interest in selling the company was personal, not financial. His father, Chris, founded the company in 2001, and was retiring. Those retirement plans were the impetus for a company sale. According to Leyva, "My parents had built and run this thing and it was time for them to retire. We had been scaling the business with a couple of my brothers. But my father's retirement plan was his exit plan, so it just became time to sell."
Being a growing company, Infinity Software had already been targeted by potential buyers. Leyva received offers even before the company went up for sale , and got many additional offers after taking on Corum as an investment banker. But Leyva had specific goals in mind. Money certainly was one of them. Leyva says, "We wanted X amount of money in the deal because we really didn't need to sell. In fact, we could keep running and growing the business.” But having the right fit was important too. Leyva says he wanted to find a trustworthy long term home for the business. Underscoring the importance of waiting until goals are met, Leyva offers the following: "You've got to set your goals up front and try to get what you want and not settle for less. We saw a hundred different offers that were not what we wanted. Being able to say no to those offers was really critical to finding the right one. It's tempting to want to take the first or second offer that comes because you're not sure how pretty you really are. So you've got to be able to say no to what is not pertinent to you and keep looking for the right thing that comes along."
Get the right advisor
After Leyva and his family made the decision to sell, one of the first things they did was find a trusted advisor. Leyva recalls that it was important to get an experienced broker on board who knew how to respond to the offers he was already receiving, because he had never participated in a transaction like this before. Leyva noted, “We actually vetted a number of brokers, obviously doing our research on that front, and felt good to move forward with Corum Group. Then we started the sale process.”
Working with Corum had major benefits. One of them was Corum's assistance in helping Leyva ensure he had a solid pitch to present to buyers. Leyva recalls, "The pitch was very important for us. We worked really hard on that. When we pitched it to the Corum Group advisors, who are pitch analyzers, they said it's one of the best pitches they had ever seen. I was so happy because I was nervous going into that thing. I'd never done this and was afraid that I was going to botch it. So making that pitch come out right was really important. It added millions of dollars to the final deal for us.”
Corum also found Leyva a wealth of prospective buyers, something Leyva said was "super helpful." He recalls, "I probably pitched to 50 different companies, over the course of 12 months, while continuing to run the business. And then LOIs came in from really reputable buyers. We were talking to people who were ex-CEOs of companies like Uber who were looking to buy us. We felt like a little fish that’s totally surprised dealing with people like that. We were doing pitches, and we were working with these people, and an LOI would come in and then drop out. And we'd do due diligence for three weeks and it wasn't the right fit. So it was kind of like fishing. You know it took time to find the right person, to find the relationship, and ultimately we did. We made a great deal, a great exit. It ended up working really well and we were able to sell for a great multiple."
Be Flexible
One piece of advice that Corum gave Leyva was a warning that the buyer would to try to chop their offering price at some point, so be prepared. And that's exactly what happened. Leyva remembers what transpired the day before he was set to close. He recalls, "The buyer said they needed to call our biggest clients. Otherwise, they were not going to close." Initially hesitant to allow that, Leyva finally agreed. However, he made it clear that he was willing to walk away from the deal if he wasn't satisfied.
As it happens, Infinity Software's contract specifies that a client has to give 60 day notice if they're going to cancel, and the day before the closing was exactly 60 days before the contract with one of Infinity Software's top clients was to renew. Unfortunately, that client was hesitant about renewing. Leyva pointed out that the client wasn't sure that she was going to cancel. She simply said that she might. In fact, she did renew and is still a client. But that hesitancy gave the buyer a reason to drop their offering price. An angry Leyva said that resulted in a $1.8 million "haircut". However, because of Leyva's threat to drop out of the deal, he was able to negotiate the haircut down to $1 million with an earnout. That agreement actually worked to Leyva’s advantage. He says, "We can recoup that amount if we earn 17% growth in the next 12 months. And we're going to have 30% growth, so I'm about to earn another one and a half million. I'll probably make more money on the sale, but it will require some more work for an extra year."
What Leyva learned through this episode is the importance of being flexible, especially before closing. He notes, "Being willing to walk away was what helped us negotiate, to get that earnout, to get that 1.8 down to 1. The buyer was just as scared to lose us as we were scared not to close the deal. That was really important."
It's all about relationships
One thing that surprised Leyva during the sale process was the importance of the human element. He says, "It's just people on the other line. At the end of the day, the relationships that you make are crucial. I thought there would be more business, more numbers, or something to prove everything. And though the buyer still required all of that, it was probably more the relationship than the numbers that was important ‒ even though the numbers have to be right. That relationship piece and how crucial it was, was unexpected."
Part of that relationship piece for Leyva was building a sense of confidence in dealing with buyers, people who Leyva says owned lots of companies and were bigger than his company." He notes, "I always pictured them as being better at operating than we were, that they were just perfect. It's like they're on a pedestal." But he learned that reality was quite different. He said, "Frankly, I had a lot to teach them about how to operate the business once they acquired me." His advice to sellers is not to give prospective buyers too much influence and power, no matter how big they are. He says, "Don't put them too much on a pedestal. Realize that they're better than you probably in some ways and you very well may be better than them in some ways too. Keep your confidence high."
Freedom to choose
Asked how life has changed after the sale, Leyva responded that it's given him choices. He says, "What I've learned, as it's always spoken but sometimes people don't believe it, is that money won't make you happier, but it gives you choices. It gives you direction, it gives you a chance to take a break from what you're doing if you want to take a break and refocus on what makes you happy." Infinity software is now an independent business unit of Aquila Software, and Leyva and his brothers are still running it. But, he says, "I'm playing the year out to see what I want to do, see where I want to go next. Do I want to leave my role entirely and start a different career or do I want to start digging down into this one? I like to have the freedom to choose."
To read more about the Infinity transaction, visit https://www.corumgroup.com/transactions/aquila-infinity-enterprise-lending-systems