10 Feb Why should I use a technology M&A firm to help me sell my business?
If you have an IT software or service company and you are thinking about selling your business, you can handle it yourself or partner with an M&A firm like Austin Dale Group. Whether you want to plan an exit strategy or are reacting to an unsolicited offer, there are several things to consider when it comes time to sell or recapitalize. Whatever the catalyst, you must decide whether you have the time and skills to manage the process yourself or if it makes more sense to hire an experienced M&A firm – particularly a firm that specializes in technology companies – to represent you and make the best possible deal.
Advantages of using an M&A firm
An M&A firm works as an agent on behalf of its client to complete a successful transaction. The firm has a fiduciary duty to act for the benefit of their client to get the best price and terms, while dealing with both parties fairly and honestly. Most owners want a successful transaction, with price and terms that fairly reflect the value of their business, and a place where their employees can continue to thrive.
It pays to outsource
Managing the M&A process on top of running a business is difficult. You have to know where to look for potential buyers, market to them (while retaining confidentiality), respond to their inquiries, deal with tire kickers and other time wasters, handle due diligence requests, and negotiate price and deal terms. These all take considerable time, energy, and skills. For a smaller company it’s nearly impossible to do this effectively while running your business. If your company’s financial results suffer while you are trying to sell it, buyers may walk away from the deal or re-negotiate the price and terms.
By hiring an M&A firm to handle your transaction, you are outsourcing to experienced professionals that do this every day. At Austin Dale Group we use a proven process to find and qualify multiple buyers, run the entire competitive sales process, and get the deal to closing. Sadly, many business owners, in an effort to save on the advisory fee, don’t find the best buyer or get the best price for their business. A team of researchers recently demonstrated that this competitive process increases the selling price by 27%, on average, over the price achieved by owners selling their own business. As the seller you’ll still have plenty of work to do, but your advisor will guide you through the process and make it more efficient. We understand that some sellers are not thrilled about paying M&A advisor fees. Just consider the return on investment and it should be an easy decision when you stand to gain hundreds of thousands of dollars or more in excess of the advisor fees from a successful transaction.
| Purchase Price | Success Fee | Net Proceeds | Difference | |
|---|---|---|---|---|
| Sale handled by Owner | $6,000,000 | $ - | $6,000,000 | $ - |
| Outsourced to M&A Firm | $7,620,000 | $381,000 | $7,239,000 | $1,239,000 |
Another benefit of using an M&A firm is having a knowledgeable guide to help you identify the best sales strategy. Business owners have a number of options to plan their exit: full sale, recapitalization, management buyout, and others. An advisor can walk you through the options and review the potential scenarios with you and your team, including your financial and legal advisors.
Buyers have more experience than sellers
Most buyers are smart and experienced. M&A buyers often buys dozens or more companies in their careers. They are looking to make the best deal for themselves and will take advantage of an inexperienced seller who doesn’t know what the value of their company is and may overlook critical deal details. An M&A firm that knows your industry will level the playing field so you can make the best possible deal and get the transaction closed.
Perhaps a buyer has already approached the seller with a reasonable or even generous offer to acquire the business and the seller is ready to get the deal done. We’ve seen this many times. Unfortunately, sellers often settle for less than ideal terms and leave some money on the table.
We realize that entrepreneurs are often mavericks that can do a lot without anyone’s assistance. But going through the M&A process the right way, and dealing with the many structural, financial, negotiation, legal, and ethical decisions on your own, is rarely the optimal solution.
Advantages of using a technology industry specialist
Some of the critical factors in this industry that will greatly influence your valuation, due diligence, and post-closing integration include:
- Quality of recurring revenue
- Your intellectual property and how well it is protected
- Your technology, including the use of public domain software and strategic alliances
- The importance of retaining talent, especially technical and managerial talent
The principals of Austin Dale Group have 30+ years of operational and transaction experience in the information technology industry. We have built a network with access to thousands of qualified buyers that are interested in acquiring or merging with profitable IT software and service companies like yours.
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