No two technology companies are exactly the same and no two successful sales of technology companies are mirror images. However, there are some aspects of successful sales that many tech companies have in common. Various Corum clients who successfully sold their tech companies shared their experiences at two recent Growth and Exit Strategies (GXS) Conferences held by the World Financial Symposiums (WFS). Here are some of their insights.
The best acquirer may not be the highest bidder
Betina Nygaard until recently was the CEO of Scanmarket, a Danish company that provides supply chain management and contract lifecycle management software. The company was sold in 2019 to Norwegian PE firm Verdane. Nygaard stayed on as the CEO of the company and was instrumental in selling the company again in 2021 to Unit 4, a Netherlands-based enterprise software company. Nygaard, who was a member of the Sellers Panel at a GXS Conference held on May 25, 2023, stressed that Unit4 was not the highest bidder for the company. Actually, it was the third highest bidder. However, what her team sought was the right fit. Nygaard said, "We looked for a buyer who would share our philosophy, our culture, values, and understood our markets." Unit4 met those requirements well,” Nygaard noted. "We felt a very strong connection to them and we weren't disappointed."
Another member of the May 25, 2023 Sellers Panel, Ken Neeld, had a similar story to tell. Neeld is the CEO of Delphi Display Systems, a company that provides digital display and drive-through technology for restaurants and other industries Neeld said he recently sold Delphi to Toast, a company that offers point-of-sale systems to restaurants. Like Nygaard, Neeld wasn't focused on finding the highest bidder. Instead, he concentrated on obtaining the best outcome for his employees. "We didn't take the most financially lucrative deal," said Neeld. He recalled, "I had two kinds of non-negotiable items in selling the company. We had a lot of loyal employees that had been with me for over 20 years. So what I told every buyer is that the employee has to come over with the deal. And number two: every employee has to be better off after the deal than before the deal. The buyer we went with was able to guarantee that. In fact, they made a requirement of the closing that everybody sign the offer. And literally everybody is better off now."
Having a good investment banker is crucial
York Baur, CEO of real estate technology company MoxiWorks, was a member of the Sellers Panel at a GXS Conference held on August 3, 2023. Recalling his experience with the M&A process, Baur emphasized the importance of having a good investment banker. Having a good banker is absolutely crucial because, in Baur’s words, "They've seen the movie before." Baur made the analogy of selling a home. He said 90% of homes in the U.S. are sold with the help of a real estate agent because they do it every day. Similarly, a good investment banker has the knowledge and experience to smooth the way to a successful sale of a company. With the assistance of Corum, MoxiWorks received LOIs from four PE firms, and ultimately settled on PE firm Vector Capital.
Kevin Nolan, another August 3, 2023 panelist and the founder of Ireland-based software company Azpiral, also stressed the importance of having a good investment banker. Nolan sold the company in 2022 to enterprise software company PDI Technologies. Reflecting on his experience with the M&A process, Nolan noted that he received three-to-four hundred questions from the prospective buyer, which led to a lot more work than his small team expected. However, they were supported by Corum, something that Nolan emphasized was critical and very helpful.
Keep your eye on the ball
Going through the M&A process can be challenging. For example, handling the volume of requests from the buyer for information can be time consuming and frustrating, particularly when the seller still has a business to run. In Ken Neeld's case, the due diligence that led up to the sale of his company to Toast was particularly stressful. Neeld recalls, "We had prepared a lot, but they just wanted to slice and dice data and ask a lot of questions that we didn't have in the way they wanted. So it was just a lot of work, a lot to go through. At the same time we were trying to keep the day-to-day operations on track because you always have to be prepared for a deal not to go through.” Neeld's advice: "You need to keep your eye on the ball in case all of a sudden things turn south."
For Betina Nygaard, keeping an eye on the ball means being prepared very early in the M&A process. In selling her company Scanmarket to Verdane, her challenge was gathering sales data in the way she expected the buyer to see it, with the right key performance indicators and the right analysis. "Building the data cube took quite some time because our invoicing was very manual," she said. "We didn't have products, we didn't have geographical spread, we didn't have customer lifetime data, we didn't have contract links, and so on. So we needed to put together the sales material from many different data sources." Furthermore, things such as currency fluctuations added to the complexity. "There was a lot of stuff that was pretty complicated when it needed to be combined into one data cube, "she added. "That's why I always advise people to start a process and be prepared well ahead of time."
Divide and conquer
Going through the process of getting a deal done while running a business requires a clean separation of responsibilities, according to York Baur. "You have to compartmentalize the process,” he says. “In other words, it has to be sequestered almost on a militant level within a very small nucleus of people that are going to work the deal. And everyone else works the business. If you mix the two, you're going to do both poorly. So you have to divide and conquer." Baur also notes that in his experience most employees simply don't have the experience and perspective to balance the day-to-day work with the excitement or other emotions that might come with a pending transaction. So cleanly segregating them from the ongoing deal is very important.
However, sometimes having that clean separation is difficult. In working as a part-time CFO for startup companies, Suzanne Oakley, who was a sellers panelist at the August 3, 2023 GXS Conference, witnessed the near impossibility of keeping word of ongoing M&A deal negotiations from employees. She recalled a software startup that she worked for that had about 20 employees. Oakley said, "It was pretty hard when the CEO entered the conference room for hours at a time with the door closed, and not have people ask 'Why is he in there for so long. What's going on?'" The prospective buyer was a hardware company that had an even smaller group of employees. What worked well in that situation, according to Oakley, was good communication between the CEOs of both companies and their employees. "The management teams of both companies just said, 'You know, we have to be upfront with the employees and let them know what's going on, and keep them involved in the process." In addition, Oakley remembered, "Before the deal got inked, both companies were able to carve out incentives for the team to stay.” The key points for Oakley were open communication on the management team side, and providing financial incentives for employees to stick around and keep working. ” That was the way, “she said, “they successfully managed the situation.”
Keep the stress level in check
Going through the M&A process can be stressful for a seller. Scott Picard, CEO of Business Infusions, a software company servicing horse veterinary practices, and a member of the sellers panel at the August 3, 2023 GXS Conference, said, "There's just a high level of stress for everybody involved. And there's an emotional tie that just sends you on a roller coaster literally every day to try and get through and convince yourself this is the right thing. It's just a huge challenge from a mental perspective to try and push these things through.”
Avoiding this stress, where possible, can make for a much better M&A experience. Tara Akhavan founded IRYStec, a Canadian software company focused on using perception and physiology to optimize the user experience of display systems. She sold the company to auto maker Mercedes Benz in 2020. Sitting on the Sellers Panel at the May 25, 2023 GXS Conference, Akhavan was asked what she would do differently the next time she sold a company. In response, she offered that she would try to reduce the stress level by focusing on what she could control and not worry about the things she could not control. "I think we spend collectively a lot of time on trying to manage and navigate through the worst case scenarios," said Akhavan."Sometimes it's healthy and helpful, but the worst-case scenario is very rare." Her point: spending a lot of time and effort on those very rare cases might not be worthwhile.
But even if some or even most of those stressors can't be avoided, going through the M&A process is well worth it. York Baur put it this way: "The process is always going to take longer and be more fraught than you expect. It can definitely be stressful, but ultimately it's a good process."