From The Editor | July 7, 2017

6 Takeaways From Corum Group's Software M&A Briefing

Abby Sorensen July 2017 Headshot

By Abby Sorensen, Chief Editor

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I recently attended a Merge Briefing in Philadelphia hosted by Corum Group, and walked away with a notebook full of insights and tips software executives need to consider as they prepare to sell a company. Corum works exclusively with software and tech companies, so this was more in-depth than a generalized M&A crash course. The briefing was led by Ivan Ruzic, VP at Corum Group, who has held executive positions at, and successfully sold, several software companies throughout his career. David Matlin, special counsel at McCarter & English, hosted the event and also provided advice from his legal perspective.

Here are a few of the top takeaways from my notes:

  1. The average transaction size for US software companies is $20 million. Even though $1 billion+ deals are the ones that make headlines, those only represented about 80 of the 3,914 total transactions last year. The vast majority of transactions are at the smaller end of the market, so software companies shouldn’t feel like failures if an asking price is less than nine figures.
     
  2. In 2016, Microsoft and Salesforce combined acquired 22 software companies. It’s clear that most software companies dreaming of selling to these big companies need to set realistic expectations, especially considering Vista Equity Partners gobbled up 39 software companies in 2016.
     
  3. Even if you don’t ultimately sell your software company, it can still be worthwhile to go through the process of positioning your company to sell. In addition to building key relationships with C-level executives at potential buyers, it will provide invaluable insight about how to refine your business model.
     
  4. Ruzic discussed how easy it is for business to drop off due to executives being distracted by the process. He showed a slide listing 60+ documents that need to be prepared for due diligence as an example of the time drain software companies will face as they prepare to sell.
     
  5. Integration shouldn’t be an afterthought. Companies need to think through how they will incentivize key employees to stay on board throughout the transition, and executives need to consider the message they want to send to their team on day one at a new company. Ruzic gave the example of showing up to work on day one at the company that acquired one of his early software startups, and to his disappointment no one knew who he was. That kind of miscommunication and disorganization can take the wind out of your sails after an otherwise successful process.
     
  6. Matlin pointed out the importance of structure and organization leading in to the selling process. If you start getting your paperwork together when you are at the point of wanting to sell, it’s too late. He gave an example of a company sale that was delayed by missing paperwork. The company didn’t have proper documentation related to a specific part of its employment contracts, and it cost the owner around $4million in legal fees to track down signatures from all current and past employees and outside contractors (including those who had left the company on less than positive terms). The company was 100% bootstrapped so even though the $80 million sale was still a nice payday for the owner the $4 million came directly out of his pocket.

For more insights on M&A best practices, be sure to read the August issue of Software Executive. Jeff Riley, VP at Corum and former CEO of Dinerware, wrote a guest article “9 Tips For An Optimal M&A Deal Structure.”

A complete list of Corum Group events can be found at: https://www.corumgroup.com/Event-Details