In a recent sellers panel discussion chaired by Corum Group, four tech company sellers offered their advice on what makes for a successful sale. The sellers were:
Jim Falkanger, CEO of Central Consulting Group
Keith Barr, former CEO of Leading2Lean
Richard Staveley, former CEO of ip.access
Pieter Nel, CEO of MineRP
Work with a trusted advisor
Each of the CEOs looked to advance their company either through a sale or merger and they realized that working with a trusted advisor was key to an optimal outcome. One example of this was the sale of MineRP, a South Africa-based provider of software solutions for the mining industry. In late 2020, with the assistance of Corum, MineRP was acquired by Epiroc, a Swedish manufacturer of mining and infrastructure equipment.
As MineRP’s CEO, Pieter Nel was involved in two previous acquisitions by the company before turning to Corum for assistance in finding a buyer. Nel recalls that Corum's assistance was pleasantly surprising. He recalled, “First, their structure and experience helped us be much more aware of the risks. Second, the number of potential buyers they generated was excellent. And the biggest surprise was the price we received ‒ 40 percent higher than what we expected. We did a number of management presentations during the process, and all of them were well prepared, thanks to the intensive coaching and guidance we received from Corum. That advice and guidance created confidence for us at the final stage of negotiations with the acquirer."
Fully understand the transaction
The expected result of an M&A process is a successful transaction between seller and buyer. An important consideration in that transaction is how the seller will get paid, something that was top of mind to Jim Falkanger. Over the last few years, Falkanger sold two companies with the assistance of Corum. Recently he sold Deltek specialist Central Consulting Group (CCG) to Aktion, a national ERP software reseller to companies in the construction, distribution, and manufacturing markets. In 2019, he sold EleVia Software, a financial software company for the architecture and engineering vertical market, to Battery Ventures, a global technology-focused investment firm, and Newforma, a Project Information Management (PIM) software developer.
Both transactions involved an earn-out component, something that Falkanger said taught him to be fully aware of the mechanics of the transaction. He put it this way: "I strongly encourage a fellow CEO to make sure they fully understand the transaction that they're getting into. If there's a cash initial payment and then some form of an earn-out, it's certainly important to work with your respective attorney and CPA to understand the language in an asset purchase agreement, and to work with your M&A advisor to fully understand how that will unfold over the ensuing period."
Be thorough in due diligence
Due diligence can make or break an M&A deal. Buyers want to know as much about your company as possible ‒ especially any potential risks or exposures ‒ before they agree to a deal. And the bulk of that information needs to be identified during the due diligence process. Doing a thorough a job in providing information about your company is very important, and it's an exercise that should be done with the assistance of a professional M&A advisor.
With Corum’s assistance, Keith Barr recently acquired a strategic recapitalization and growth investment from venture and growth stage investment firm M33 Growth for his company Leading2Lean (L2L), a Lean Execution System software platform for manufacturers. To gain that investment, Barr noted that thorough due diligence was key. He pointed out that doing a good job in due diligence not only painted a detailed picture of his company's current status and future potential, but also its history. According to Barr, "I think the diligence, the being prepared for the level of detail and the complete inventory of things that a buyer really wants to see and understand, it was pretty daunting, I think we were in better shape than a lot of companies are. But we also needed to gather history information such as terminations of employees or customers you don't have any more and the circumstances around those things."
And when you provide that information to buyers, make sure the targets you set are achievable. According to Barr, "The most important thing is to hit the plan that you're projecting. You're going to present numbers during the early presentations with buyers, and it's important to hit those numbers because they're going to come back a month or two later when they're in the second round and they're much more interested in buying the company, and if any of that's changed that's going to raise some questions. You want to make sure you're hitting a plan so you don't have any reason for any kind of revaluing to occur during the close of the business."
Go through the process early
Working with a trusted advisor and going through a formal M&A process such as Corum’s Eight Stages for an Optimal Outcome are vital in achieving M&A success. But as Richard Staveley points out going through the process early is important too.
Staveley, who sold Corum client ip.access, a leading 2G, 3G, 4G and 5G-ready carrier grade small cell solutions provider, to end-to-end network software provider Mavenir, advised, "Don't wait until you think you've got everything lined up. Go to the market early, because you will get feedback on whether or not your solution, what you have to offer, is relevant to the market. You can spend as much time as you like at a whiteboard with your plans. But until you go out there and get some feedback from potentially interested parties‒ and start with your advisors‒ you will not know whether or not the timing, the proposition and the value that you think you have is indeed what the rest of the market sees. Go get advice, and go and listen to the seminars that advisors like Corum Group offer. Stand on the shoulders of other CEOs that have gone through this process. Go and test what you think is true."