Completing the Sale of a Technology Business: A Step-by-Step Summary
by Aaron Solganick, CEO, Solganick & Co.
Selling a technology business can be a complex endeavor, laden with multiple stages and crucial decisions. Whether you’re a fast growing company looking for an exit or a mature company exploring strategic and financial M&A options, the sale process requires precision, preparation, and patience.
It is important to have the right deal team in place prior to starting the sell-side process such as an experienced investment banker (such as Solganick & Co.), financial team, and an M&A attorney.
Here’s a summarized guide to ensure you navigate the sale of your tech business successfully from beginning to end:
1. Preparation and Decision-making:
- Evaluate reasons for selling and determine the right timing.
- Conduct a thorough audit of all business aspects: finances, operations, technology, and intellectual property.
- Assemble a competent team, including financial advisors, lawyers, and industry experts.
2. Business Valuation:
- Understand and obtain a professional valuation or estimate to understand the worth of your technology business.
- Consider factors like revenues by type, growth rates, gross profit margins, EBITDA and potential adjustments (positive and negative), customer concentration, intellectual property, client and revenue retention rates, comparable companies that have recently traded, public companies in the sector, and other industry benchmarks.
3. Marketing and Outreach:
- Develop a Confidential Information Memorandum (CIM) that highlights your company’s strengths, operations, financials, and potential.
- Identify and reach out to potential buyers, which could be competitors, financial investors (private equity firms), or firms in adjacent sectors.
- Reaching out to only a few buyers, or worse, responding to only inbound inquiries, will result in missed opportunities and limited options you will have when running a sale process. Running a compresensive and targeted M&A auction process will help to maximize the outcome including receiving multiple offers and driving valuation higher.
- Engage with interested parties and entertain offers.
- Setting IOI and LOI bid timelines to submit offers helps keep buyers from taking too much time in their initial review
- Review terms, conditions, and valuation presented in Indications of Interest (IOIs) and Letters of Intent (LOIs).
- Negotiate with the help of your deal team (legal, tax and investment bank) the appropriate transaction structure for tax purposes.
5. Due Diligence:
- Allow potential buyers to scrutinize all aspects of the business. This involves providing detailed financials, legal and operational documentation and data, answering queries, and showcasing the genuine potential of your technology assets.
- Establish a data room to allow access to all deal parties on a limited basis.
6. Finalizing the Deal:
- Draft the purchase and sale agreement with all terms, conditions, and contingencies. Or, ask the buyer’s legal team to draft the agreement.
- Engage your legal team to review, refine, and finalize the purchase and sale agreement and employment agreements.
7. Closing the Sale:
- Ensure all legal and regulatory approvals are obtained.
- Execute the transaction: transfer assets, share ownership, and handle financial transactions.
8. Transition and Handover (Integration):
- Collaborate with the buyer for a seamless transition, ensuring continuity in operations, product delivery, and customer relations.
- Depending on the agreement, provide post-sale support, training, or consultations.
9. Post-sale Reflection and Next Steps:
- Reflect on the sale process, understanding what went well and areas of improvement.
- Determine next steps, whether it’s retirement, starting a new venture, or exploring other business opportunities.
The journey of selling a technology business is both challenging and rewarding. By taking a structured approach and leveraging expertise where necessary, you can ensure that the process culminates in a successful and satisfactory conclusion for all stakeholders involved.
Solganick & Co. provides comprehensive M&A advisory services to help you complete a transaction from start to finish. For more information, please contact us.