Beginning the M&A process is exciting. You have generated strong momentum for the future growth of your software business and are ready to pursue a sale.
As you start this process, consider some of the more common mistakes that software companies make when selling their business.
Waiting too long to sell
Your company’s value is determined by more than just its financials. It is determined by many factors that impact the market, including:
- The economy
- The industry’s momentum
- Your nation’s trading practices
- The evolution of your products
For this reason, it is important to think strategically about timing. Your own corporate circumstances may change with time, but so will the environment around you. Understand all the variables and survey the market, then choose your moment and seize your opportunity.
Failing to prepare
Selling a company is a complex process that can be mentally and emotionally draining. Preparing as much information and documentation as you can in advance of the due diligence process is essential to making the sale as efficient as possible. Making arrangements for a team to manage the sale process in a way that doesn’t detract from running the day-to-day operations of the business is another way to avoid undue complications and stress.
Lacking transparency
When you get close to a sale, prospective buyers will want to learn every aspect of your business, including your company history and future goals. Potential buyers will want to uncover everything, and you must be transparent about what they are likely to find. Remember that nobody will be surprised if your company has endured challenges or faced obstacles – most businesses do. But if these issues are exposed late in the process, there will likely be an impact on your financial agreement.
Underestimating deal structure vs. price
Although price is a key consideration in any sales process, the structure of a sale can be equally (if not more) important. Fully understanding the strings attached to earnouts and being realistic about the contingencies that will trigger certain structured payments could be the difference in being satisfied with your outcome or making a deal you regret. Sometimes the highest offer isn’t the best one after you read the fine print.
Selling to the wrong buyer
Acquisitions run the risk of failing if there is not a strategic fit. A software company sale is about more than just the sale price. Make sure that the buying company offers an environment in which your software company can thrive.
