Here are 5 key trends in Software M&A in 2024:

1. Recovery in M&A Activity

• Deal Volume and Value: After a dip in 2023, the total deal volume in 2024 is projected to grow by approximately 15-20%, according to industry reports. This resurgence is fueled by companies looking to enhance their digital capabilities, enter new markets, and consolidate their positions in existing ones.
• Valuations.   One of the impacts of the techwreck was a rapid divergence in buyer/ seller valuation expectations.   The gap appears to have substantially closed,  buyers looking for ‘extreme value’ have found themselves missing out,  and sellers expectations appear to have reverted back to metrics in line with long-run benchmarks.
• High-Value Deals: Mega-deals (valued over $10 billion) are making a comeback, particularly in sectors like enterprise software, cloud computing, and cybersecurity. In the first half of 2024 alone, several deals have surpassed the $5 billion mark, indicating robust investor confidence.

2. Increasingly Complex Regulatory Environment

• Regulatory Scrutiny: The regulatory landscape is increasingly stringent, especially for tech-related deals. In the U.S., the FTC and DOJ are more aggressively scrutinizing deals for anti-competitive practices. Globally, the rise of economic nationalism has led to more deals being blocked or delayed. For instance, in the EU, over 25% of proposed tech mergers faced significant delays or were abandoned due to regulatory hurdles in 2024.
• Cross-Border Challenges: Cross-border M&A deals are particularly challenging, with 40% of such deals in the tech sector facing extended review processes. Governments are increasingly wary of foreign acquisitions, particularly in sensitive sectors like AI and cybersecurity.

3. Focus on acquiring Technology Capabilities

• Tech-Driven M&A: Technology capability acquisition is one of the primary motivations driving  M&A in 2024. Companies are acquiring firms to gain access to cutting-edge technologies, with a strong focus on artificial intelligence (AI), machine learning (ML), and cloud infrastructure. According to PwC, over 60% of M&A deals in 2024 are motivated by the need to acquire new technology or digital capabilities.
• AI and Automation: The integration of AI and automation technologies is a key trend, with 35% of tech M&A deals focusing on companies specializing in AI, robotics, and automation. This trend is expected to continue as industries like finance, healthcare, and manufacturing seek to enhance efficiency through technology.

4. Private Equity’s Growing Role

• PE Firms in Tech M&A: Private equity (PE) firms are increasingly active in the software M&A space. In 2024, PE firms are expected to account for nearly 40% of all tech-related M&A deals. This is up from 30% in 2023, driven by the vast amounts of dry powder (uninvested capital) available and the need to deploy it in high-growth areas.
• Focus on Distressed Assets: PE firms are also eyeing distressed assets, especially in sectors hit hard by economic downturns or rapid technological change. This is leading to a rise in opportunistic acquisitions, where PE firms acquire struggling tech companies at lower valuations.

5. Macroeconomic Headwinds

• Economic Uncertainty: Despite the overall growth in M&A activity, macroeconomic factors like inflation, rising interest rates, and geopolitical instability are influencing deal strategies. In particular, there’s a shift towards acquiring companies in recession-resistant industries, such as healthcare IT and cloud services, which are less likely to be impacted by economic downturns.
• Interest Rate Impact: The rising interest rates are a double-edged sword. While they increase the cost of borrowing, making some deals more expensive, they also create opportunities for PE firms and corporations with strong balance sheets to acquire assets at more attractive valuations.

Statistical Highlights:

• M&A Value Growth: Global M&A activity in 2024 is expected to reach approximately $4.7 trillion, up from $3.9 trillion in 2023, with technology-related deals comprising around 25% of the total.
• Cross-Border Deals: Cross-border M&A activity is projected to account for 40% of total deal value in 2024, despite regulatory challenges.
• PE Dominance: PE-driven deals could reach a record high in 2024, potentially accounting for nearly 50% of total global deal value in the software and technology sector.

Overall, 2024 is shaping up to be a good year for software M&A,  of you are interested in learning more about the state of the M&A market or wishing to discuss plans for your own business,  please contact one of the Eaton Square

]]> https://eatonsq.com/blog/the-key-questions-buyers-ask-before-buying-a-software-company-part-1/ Mon, 02 Sep 2024 07:01:17 +0000 https://eatonsq.com/?p=7455 When it comes to selling your software company, understanding the mindset of potential buyers is crucial. At Eaton Square, we’ve worked with numerous software firms and have found that buyers, especially private equity (PE) firms, focus on key metrics and factors that determine what opportunities they will spend time considering and the potential attractiveness of an acquisition.

Many buyers want to know ARR, Churn Rate, Growth Rate and EBITDA before deciding to respond to a potential seller’s call or email. But sticking with the grand tradition of ‘top 10 questions’ we’ll go a bit deeper in this first blog of a two-part series, we will assume we have gotten past the front door and explore the first five of these qualifying questions that help potential buyers determine if they will spend serious time evaluating a purchase opportunity.

With financial acquirers such as Private Equity and Software Aggregators now accounting for nearly half of software business purchases, and the transition of most software sales to SaaS businesses models, it should come as no surprise most buyers questions first focus on ‘standard’ SaaS metrics to triage or quickly cull opportunities.

1. What is your Annual Recurring Revenue (ARR)

Annual Recurring Revenue (ARR). Everybody loves to talk about sticky recurring revenues, and it is easy to slip into the habit of speaking of ARR when referring to total revenue. When talking to potential buyers it helps to be specific about revenue mix upfront. Even rough ballpark revenue scale and composition numbers helps buyers quickly determine if an opportunity is in their ‘goldilocks zone’ – big enough to move the dial, but not so large as to be indigestible.

2. What’s your customer churn rate (CCR), net retention rate (NRR), customer acquisition cost (CAC), and estimated Customer Lifetime Value (LTV)?

Because SaaS business models are now mainstream, almost all investors are familiar with the basic metrics of SaaS unit economics and want a potential opportunity to ‘show not tell’ the calibre of the business by the numbers. Fortunately, the buyer universe is diverse so even if your metrics are not top quartile, there may still be buyers albeit at a difference price compared to a business with fantastic numbers.

3. How has your revenue grown year-over-year for the past 3 years, and what is your forecast growth for next year?

There are buyers who like high growth businesses and those who focus on acquiring more mature businesses. Understanding the strategies of potential buyers prior to approach helps sellers be more efficient in finding and engaging the buyers most likely to be interested.

4. What’s your current sales and marketing expenditure, gross margin, and EBITDA?

Or more simply put, tell us if you are losing money, profitable or really profitable either right now or are heading in that direction.
Amongst financial investors EBITDA is a convenient filtering measure to assess if a deal is in the sweet spot for their fund or acquisition strategy. EBITDA too large, then there is likely to be more competition from larger funds, EBITDA too small (and lacking without a great story as to why it is about to recover) then why waste time on something too small.
EBITDA is also an important filter for strategic acquirers – they may buy for other reasons, but it much easier to get on acquisition agenda if a deal is seen to ‘move the dial’

5. Who are your primary target customers, and what industries do they represent? Which geographic markets are they located in?

Let’s assume that our audience likes our ARR, Churn, Growth and EBITDA story. Next on the agenda is understanding your customer base. For strategic buyers, this probably comes first in considering whether to look at a deal. For financial investors, this question is key to assessing the potential for growth and risk of overreliance on a cyclical industry or a small number of customers.

Next Steps

In this first part of our blog, we’ve touched on the first ‘filtering’ level of questions buyers ask when initially deciding to invest time considering the purchase of a software company. In our next blog, we’ll delve into additional questions that sellers should anticipate early in an acquisition discussion.

Stay tuned for Part 2, where we dig in further so you as a potential seller can mentally prepare for buyers initial questions. If you’re considering selling your software company and want to ensure you’re fully prepared to answer these questions, contact us at Eaton Square. Our expertise in software M&A can help you navigate the complexities of selling your business, ensuring you achieve the best possible outcome.

6. What’s your current market share in your major market, and who are your main competitors?

Buyers are keen to understand your position within the market. They’ll ask about your current market share to gauge how dominant or competitive your company is. PE firms often seek companies that have captured a significant market share in a growing industry, as this indicates a strong competitive position. Additionally, knowing who your main competitors are and how you stack up against them provides buyers with insights into the challenges they might face post-acquisition, and possible opportunities to further accelerate growth via bolt-on purchases.

7. What’s unique about your product compared to competitors?

Potential buyers are typically interested in looking beyond a company’s Unique Selling Points as listed in their marketing materials.   Sellers can help potential buyers more clearly perceive value when provided with narrative as to why  different sub groups of customers choose your product over your competitors or alternative means of solving the problem that your product address.    Support your narrative with a few well-chosen case studies, and even better if these case studies have compelling customer ROI numbers.

8. How scalable is your infrastructure, and what’s your current customer support load?

Potential buyers want to know if how your cost structure will change as the business grows.   It is worth highlighting situation where your economics improve with scale.   Conversely, potential buyers are likely to discount their valuations to the extent they think a business requires re-platforming or investments in addressing  customer support issues and in the absence of better information they make well err on the conservative side.

9. What’s your current team structure, and are key personnel interested in staying post-acquisition?

The strength and stability of your team are essential considerations for buyers. They’ll want to know about your current team structure, including the roles of key personnel and their willingness to stay on after the acquisition. Continuity in leadership and key roles can smooth the transition and maintain business momentum post-sale. PE firms often value companies with experienced management teams that are committed to the company’s long-term success, as this reduces the risk associated with the acquisition. Ensuring that your team is motivated and aligned with the company’s future can make your business more attractive to buyers.

10. How much capital have you raised from external investors?

The amount of capital raised and the involvement of external investors can impact the sale process. Buyers will ask about your funding history to understand the financial obligations and expectations that come with external investment. PE firms are particularly interested in companies that have raised capital from reputable investors, as this can indicate strong growth potential and validation of the business model. However, they will also assess any outstanding equity stakes or convertible notes that could affect the valuation or sale process. Transparency in this area helps in building trust and setting clear expectations for both parties.

Conclusion

These ten key questions form the foundation of what buyers, especially private equity firms, look for when evaluating a software company for acquisition. By preparing thorough and honest responses, you can present your company in the best possible light and increase your chances of a successful sale.
At Eaton Square, we specialize in helping software companies navigate the complex process of selling their business. Our experienced team can guide you through these critical questions, ensuring that you’re well-prepared and positioned for the best possible outcome. Contact us today to learn more about how we can assist you in selling your software company.

The Traditional Divide

PE funds historically sought proven profitability, often steering clear of businesses with earnings before interest, taxes, depreciation, and amortization (EBITDA) below $2 million. Furthermore, many Private Equity funds exclusively engaged in deals where they could secure controlling or majority positions, while some were open to co-investing alongside founders or management with minority equity stakes.

On the other side of the spectrum, VC funds were all about chasing the dream of exponential growth, aiming for returns exceeding 10 times the initial investment. This high-risk game meant that success stories needed to be monumental to offset the failures along the way.

A Limited Landscape for In-Betweeners

Companies that found themselves between these two extremes – growth ambitions not captivating enough for VC attention and not sufficiently profitable for PE investment – historically faced limited options. Their choices were essentially confined to persistently striving to stay afloat, hoping not to be overshadowed by better-capitalized competitors, or considering a sale.

Enter Growth Capital

In recent years, a game-changing development has taken place with the emergence of Growth Capital as a distinct category of investor. Growth Capital investors are uniquely positioned to partner with founders, fostering business growth alongside existing management teams.

Today, equity investors and non-bank debt providers actively seek businesses that have established a defensible market position and boast revenues of $10 million or more. What sets Growth Capital apart is its focus on supporting founders who have built their businesses organically. Crucially, these investors are not fixated on immediate profitability or the expectation of astronomical returns.

The Unique Appetite

Growth Capital investors bring a refreshing perspective, actively seeking out businesses that have already carved out a defensible market niche. Unlike traditional PE funds, they are not demanding immediate profitability or a clear pathway to a 10X return. Instead, these investors are keen to back founders who possess the ambition and energy to continue growing their businesses.

Within this category, a diverse array of investors is making their mark. Family offices are increasingly looking to make direct investments in the $5 million to $10 million range, while Growth Capital investors are prepared to write checks in the $20 million to $50 million range.

Through our research and investor outreach program within the Australian market, Eaton Square is aware of several funds focussing on the Growth Capital strategy who are currently looking for new investments in sectors including technology, business services and industrials.

With a growing number of baby-boomers founders thinking about succession and retirement, we anticipated growth capital style transactions investments becoming more common providing founders more flexibility than choosing to sell now, or putting off a decision and hoping circumstances will improve in another few years.

Let’s Discuss Your Growth Potential

If you find your business operating in the category of established revenues and growth, but not yet delivering the profitability that would deliver a satisfactory sale transaction – we’d love to connect. Let’s explore how Growth Capital could be the catalyst for your next phase of expansion and provide you a path to exit. Together, we can evaluate your options and consider whether a Growth Capital transaction offers you a better alternative to an immediate sale or deferring for a future transaction. Book a call with me today.

Topics focused on at this year’s event included:

• Impact of digital disruption
• ESG-based strategies and impact investing
• New opportunities for growth PE investments in Healthcare and the IT Services sectors
• Business succession

Offshore focus: positioning for global growth

Neil Bourne, our managing principal, facilitated a discussion on international expansion strategies with:

• David Odgers, IFM Investors
• Grant McCathy, Tidal Venture
• Trena Blair, FD Global

Three takeaways: International Expansion

1. Lockdowns has forced us all to get much smarter and more comfortable with working with remote teams. So post lockdown we are changes in the ways that companies prepare for offshore expansion both in terms of the way they gather intelligence prior to committing significant resources or in the case of early stage companies moving away from a fly-in ‘tourist’ approach in favour of relocating a founders for 3-4 month blocks whilst using remote working to keep the home fires burning.
2. It is easier and cheaper than ever to start building international sales. However, it remains tough building scale; regulatory and cultural barriers are still hard to navigate for an outsider and so M&A can still play a key role in acquiring customers, and staff who have a deep understanding of their market.
3. International expansion for most businesses is one of several growth options. Sometimes it can be smarter to first focus on growing scale domestically.

Debt Funding

Kelley Myers participated on the panel for Debt funding joined by:

• Mick Wright-Smith, Epsilon Direct Lending
• Paul Kennedy, Bain Capital Credit
• Matthew Grigg, Paddington Finance

The panel was moderated by Nick Sweeney, Head of Macquarie Mid Market.

Three takeaways:  Debt funding

1. The panel highlighted the growth of debt funding pools, especially offshore, on the back of the low yield environments, and the innovative structures that have been issued in the US and Europe. Borrowing structures for the Australian market can serve issuers although the consensus was that Australian creditors tend to be driving the market currently. Incoming capital from offshore tends to be industry-specific and conditional on bigger tickets for direct lending. Subsequent floor discussions suggests that regular sources of offshore capital coming into Australian funds, depending on mandates, can spur geographical drift away from domestic markets.
2. Getting the balance right between debt and equity. The panel talked through the capacity to take on debt at various stages: pre-revenue (R&D finance), recurring revenue, and growth. In relation to growth and funding mandate drivers, the panel also touched on the advantages of convertible bond financing for managing equity dilution and acknowledged the focus on ESG-oriented/ dedicated structures.
3. Very strong 2021 activity across their debt capital areas. On a twelve-month view, the panel had some reservations committing to a direction with the Ukraine situation concurrently unfolding. Broadly there was a positive tone, recognising that private capital markets continue to develop generally, but concede that the dynamic global geopolitical situation and shifting macroenvironment may deliver a bumpy trajectory.

Speak to our Principals

If you have questions about international growth, debt funding or M&A for your business, please reach out to any of our Principals. We offer a non-obligatory consultation to help you with your strategy.

Kelley Myers
Principal

Kelley Myers is a Principal with Eaton Square. She is based in Sydney, having relocated from London, United Kingdom in 2021. Kelley worked with Joseph Dryer, also a principal with Eaton Square in London; they were colleagues at RiverRock Securities, London where she was part of the Advisory & Capital Markets team from 2018 dedicated to SME growth capital financing. Industries served included Diversified Financials, Capital Goods, Transportation, Energy, and Food & Beverage.

E: kelley.myers@eatonsq.com
Ph: +61 459 959 795

Peter Hall
Principal

Peter Hall is a Principal at Eaton Square. He has thirty years of management and consulting experience in a wide range of industries across many countries, particularly in the Asia Pacific region. He has served as C level executive, company director, venture advisor and investor in Australia and the USA. In seven years with The Boston Consulting Group he consulted at CEO level on strategy, organisation design and operational effectiveness in the financial services, airline, building, manufacturing, oil industry, pharmaceutical and public service sectors, based mostly in South East Asia.

E: peter.myers@eatonsq.com
Ph: +61 411 179 228

Q4 Deal volume declined

2021 overall was an exceptionally active year for M&A. Q4 saw a drop in the volume of deals declined relative to Q3. Activity levels within the software sector remained strong including the eye-catching sale of New Zealand’s Weta Digital to Unity (NYS: U) for $2.26Bn.  The report covers transactions from 1 Oct – 31 Dec 2021 in Australia and New Zealand in the following segments:

• IT Services & Digital Marketing
• Software
• Telecommunications & IT Distributions

Early indications suggest that 2022 will also be a very active year for M&A in the technology sector.

Featured Deals: IT Services

Featured Deals: Software

• Volaris Group acquisition of Decideware: Sale of Sydney-based developer of agency management platform to assist in marketing & procurement to a division of Toronto-listed Software consolidator
• Instacart acquisition of FoodStorm: Sale of Melbourne-based developer of a cloud-based platform intended to automate and manage catering orders to US venture-backed $39B unicorn in the on-demand grocery delivery space.
• Unity acquisition of Weta Digital: Sale of NZ-based provider of visual effects to the entertainment sector to a US $34B listed provider of software platforms for 3D content creation.
• Ideagen acquisition of CompliSpace: Sale of Sydney-based developer of governance, risk, and compliance software to UK listed compliance software specialist.

For a full M&A listing, download your complimentary copy here.

Meet the Professional Services and IT Services Team

Neil Bourne is the Managing Principal for Eaton Square Sydney. Neil has been working with growth stage technology business for over 15 years in venture capital and corporate finance. Neil Bourne, Managing Principal neil.bourne@eatonsq.com

Warren Riddell is a Principal at Eaton Square based in Sydney. He has 30 years of global M&A experience as a vendor, acquirer, financier and advisor. Warren Riddell, Principal warren.riddell@eatonsq.com

Patricia Glovsky is a Principal at Eaton Square. She is a technology investment banker with more than 30 years of corporate finance investment banking (M&A and capital raises (private placements, debt and IPOs)) experience. Patricia Glovsky, Principal patricia.glovsky@eatonsq.com

If you have questions about your IT Services or software business, please contact our team for a non-obligatory call.

We see a strong demand for acquisitions in 2021 across the entire IT services sector as investment capital from private equity, family offices and public markets continues to be attracted by the sector’s long-term growth prospects.

People remain the major asset for most IT Services business and the constant need to drive scale, build capabilities whilst preserving margins shape the sectors M&A dynamics.

The IT Services Vortex:

1. At the bottom of the funnel: A constant flow of new entrant as small teams of skilled individuals can easily branch out by themselves;
2. In the middle: Ongoing need to build depth across ‘hot’ capabilities either product/vendor based or domain specific such as we are currently seeing in the cyber security area. Leveraging acquisitions for accelerated scale through cross-selling and up-sell — customers tend to stick with their suppliers post-acquisition. It makes perfect sense to acquire teams that bring existing customer relations, particularly if that helps the acquirer cost-effectively expand into new industry segments or geographies.
3. At the top: Buying for market share.

Three drivers of M&A in IT Services sector

Off the back of last year’s gyrations, we see three reinforcing trends driving M&A in 2021:

1. Consolidation at the top
2. “IT Services”-as-a-Service
3. Channel Partner Aggregation

Consolidation at the Top

Jumping in our time machine back to early 2019, the Everest Group put out a list of the top global IT Outsourcers. Since then, all have made multiple acquisitions as the majors jostle for market share:
([#]number of acquisitions since March 2019)

1. Accenture [15]
2. TCS [3]
3. Cognizant [16]
4. Wipro [7]
5. HCL [7]
6. Capgemini [6]*
7. IBM [10]
8. Infosys [6]
9. DXC Technology Company [6]
10. NTT DATA [2]

* plus the acquisition of ASX:RXP pending

“IT-Services”-as-a-Service

The trend towards cloud computing has helped many mid-market IT Services business migrate towards recurring revenues based on long-term contracts or what we refer to as Managed Services Providers (MSP’s). This is happening across Infrastructure services, IT support Services, with a lot of recent activity in the Cyber Security sector. Private Equity is very interested in the Managed Service Provider business model, and we are seeing many MSP’s looking to acquire customers bases and capabilities to drive scale.

Channel Partner Consolidation

The names of a few high-profile enterprise SaaS products continue to be high on the wish list of large and mid-sized acquirers. Vendor partners in strong demand include Workday, SAP, SalesForce, ServiceNow. More generally, we are finding strong interest from local and international channel partners in acquiring similar business in adjacent market segments or new geographies for scale and market coverage.

Finding a strategic partner that ‘gets it’

If you’re not entirely sure where your company stands in this niche, we are happy to schedule a call with you to discuss. Our global team is comprised of senior M&A professionals across the US, Europe and Asia-Pacific. Each of us has extensive experience in the Professional Services and IT Services.

Why consider acquisitions for post-COVID growth

We are frequently approached by potential buyers who have a general idea of the type of business that they would like to acquire, but struggle to find and acquire the ‘right’ kind of target within initially envisaged timeframes because of either a lack of acquisition experience or lack of dedicated M&A staff.

“How long and how much effort is involved in growing via acquisition if we use an advisor or hire an experienced M&A manager?”

One question we are frequently asked is “How long and how much effort is involved in growing via acquisition if we use an advisor or hire an experienced M&A manager?” When reading this down as a sensible and value-adding acquisition, then we typically suggest 6 months as a reasonable expectation if the organization has the resources and experience to run a controlled process.

What’s the acquisition process like?

Apart from the occasional lucky break, most successful serial acquirers run a disciplined process that develops an extensive pipeline of relationships that are cultivated over time. This approach helps mitigate the inherent uncertainty in availability, timing and outcome for the purchase of any single business.

1. DNA Discovery

The critical first step in a managed buy-side process is defining ‘fit’. We call this step “DNA discovery” which means drilling into acquirers business model, culture, revenue streams and growth strategy to generate an explicit criteria set for targets selection and ranking.

In parallel we gather data on recent comparable transactions as part of an overall program to build buy-in and alignment from all key decision-makers: management, Board and potentially major shareholders and/or financing partners.

Depending on the strength of the acquirer’s balance sheet, a third leg of this exercise may include evaluating external debt or equity financing options.

2. Generate target long-list

Having defined criteria, step 2 of the process is to generate the target long-list. Here, a group such as Eaton Square will draw on its own extensive network in addition to desktop and database research.

3. Shortlist firms for due diligence

Our experience having worked with many companies new to the acquisition is that it frequently takes up to 3 months to build an adequately-stocked pipeline of businesses that subject to due diligence and terms, the business would benefit from acquiring; having done this preparation work, it is then realistic to expect to reach terms with a potential target within a further 3 months.

Conclusion

Our takeaway is, if you think acquisitions could play an important role in your 2021 recovery plans, then the time to start is now.

If you would like to know more about the process of running a controlled acquisition process or discuss your plans for growth or exit, you may book a call here to organize a time for a confidential discussion.

‘Spread’ is the observed range of pricing offered by various lenders in response to a given debt offer,  with smaller spreads indicating increasing liquidity.  Our NY office, SPP Capital, reports the second month tightening spread since the beginning of the COVID-19 crisis.

As the tables below observe the primary beneficiaries of the improved pricing dynamics are issuers with at least $10 million of last 12 months (“LTM”) EBITDA, but there is evidence of more competitive spreads for issuers with as little as $5 million of LTM EBITDA.  Leverage multiples, however, remain quite conservative, but with some signs of loosening for larger issuers.

In Australia,  the major banks seem to be still smarting in the aftermath of the Royal Commission and keener on supporting their existing debt portfolio than writing new business.   Demand for debt has not gone away with COVID disruption and is creating cashflow issues for some;  whilst also creating acquisition opportunities for others.   We see an increasing number of companies looking beyond the Banks for finance, with specialist debt funds and Family Offices stepping forward to fill the gap.

With a dislocation on the domestic debt markets,  we are increasingly being approached by companies seeking to run a competitive process to secure debt from international or domestic non-bank lenders.  We find non-bank lenders continue to engage well when presented with well-prepared ‘offer’ with cycle times from engagement to term sheet stage remaining within 6 weeks.

Learn more about Eaton Square’s Funding Options Review. Download the brochure here.

If you have current or prospective liquidity, you may book a complimentary call with any of our Principals.

*Securities offered through SPP Capital Partners, LLC: 550 5^th Ave., 12^th Floor, New York, NY 10036. Member FINRA/SIPC.

At Eaton Square, one of the first things we do when we start preparing a business for sale is to dig into the Company’s growth plans — simply put, growing businesses or businesses with the potential for strong growth attract more buyers and sell for better prices.

For many companies in the mid-market who have been around for a while, scratch the surface of their growth strategy and you will find an annual budget aiming to incrementally improve upon the last year. In small organisations, nobody has the time to pull together the data and do the necessary legwork to create a plan that will stand up to external scrutiny. It is difficult to do; it requires effort and the business always has more pressing requirements.

The world is full of free advice about things that you should, but probably won’t do and for many business owners ‘get yourself a robust growth strategy’ can easily slide into the bucket of things to get around to when we are not so busy.

Why prepare your business to be sale-ready?

So think of this as a nudge to action, by highlighting some of the immediate benefits of doing this work early.

1. Be better informed. Part of being better informed when you are thinking about selling your business is understanding how outside buyers or investors will view your business and its growth prospects. Selling a business you have put your heart and soul into is often an emotionally charged affair so, unsurprisingly, many potential sellers frame their views on value based on sunk costs, past sacrifices or simply the amount of capital necessary to re-invent themselves if they are no longer running their business. However, conversely, outside parties are more focused on the potential for the business to produce a return on investment.
2. Greater focus. Business performance is the cumulative effect of actions and decisions taken throughout an organisation. The very process of creating a shared view of top growth initiatives (substantiated with evidence of momentum) brings immediate benefits in aligning priorities and trade-offs.
3. Be better prepared. Embracing an ‘outside-in view’ of the business before going out to market gives current owners the opportunity to fix some things that would otherwise be used to negotiate the value downwards. Developing a growth strategy is one step, embedding the strategy and developing momentum to the point where outsiders can see that the growth initiatives have substance, requires time — so better to go hard and early on this work.

If you would like a confidential discussion about your plans to your business now, or better prepare your organisation for a future sale, please contact one of the Eaton Square team. You can book a call here.

Peter Hall
Principal, Sydney

Peter has thirty years of management and consulting experience in a wide range of industries across many countries, particularly in the Asia-Pacific region. He has served as C level executive, company director, venture advisor and investor in Australia and the USA.