Looking for Buyer Software Company
A few days ago, my father was told that a friend of his wants to sell his software company. (mid market)
Since I am involved in finance M&A (private equity), I was asked to create models as well as a valuation in order to look for a potential buyer.
How would you guys approach the matter?
Ah, diving into the world of M&A for a mid-market software company, are we? That's quite the adventure, and it sounds like you're gearing up for a significant role in this journey. Based on the most helpful WSO content, here's how you might approach this matter:
Understanding the Business: Before you even touch a financial model, get a deep understanding of the company you're dealing with. What does the software company do? Who are its customers? What's its competitive advantage? This foundational knowledge is crucial for everything that follows.
Financial Analysis and Modeling:
Valuation Techniques:
Creating an Investment Thesis: Based on your analysis and valuation, develop a clear investment thesis. Why should someone buy this company? What are the growth prospects, and what synergies could a potential buyer realize?
Preparing Marketing Materials:
Identifying Potential Buyers:
Outreach and Negotiations: Begin reaching out to potential buyers, sharing the IM, and engaging in discussions. Be prepared for negotiations and due diligence processes.
Due Diligence and Closing: Once a buyer is interested, they will conduct a thorough due diligence process. Be prepared to provide detailed information and address any concerns. Finally, work towards closing the deal, which will involve legal and financial steps to transfer ownership.
Remember, every M&A deal is unique, and the approach can vary based on the specific circumstances of the company and the market. However, leveraging the resources and insights from WSO, such as the WSO Elite Modeling Package and the various courses on financial modeling and valuation, can provide a solid foundation for tackling this challenge. Good luck, and may your M&A journey be both successful and enlightening!
Sources: What does Private Equity look at when buying a company?, Moving from Appraisals to REPE Acquisitions?, Thinking Like an Investor, How do you go about modelling a company on the buy side?, Q&A: Tech sales, to corporate strategy, to corpdev M&A in
Well first off, it’s illegal for you to formally provide financial advice that’s not on the behalf of your firm…so no I wouldn’t do the valuation work for him, maybe some back pocket math to give him some informal guidance but nothing branded that they can show to buyers. If you are good at software valuation, ask for his last 5 years of financial statements and put together a rough comps output and DCF / LBO. Then refer him to the most relevant financial advisor to actually sell the business if it’s not a junk of shit that can sell for for >$25mm
What if I had my own "investment boutique" that was licensed to broker such things without providing direct advice, but only making contact with buyers?
That doesn’t exist under the regulation of FINRA? Lol you either currently work for an active broker dealer or you don’t. There’s no way in hell your firm would clear this as an acceptable outside business activity either.
How big roughly is the company? I'd be happy to put you in touch with some software investors who, if not interested in buying it themselves, can readily connect them with some good bankers whatever sector they're in.
His total investment costs to set up the company were around €1.5m.
A similar company (comps) was acquired a few years ago for €300m and was then sold on a few years later for around €600m.
The owner says his software is much better than the one mentioned above.
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