Sell a Tech Company
How To Sell a Tech Company
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Technology has been advancing at a rapid rate, and companies with tech or digital assets are highly sought-after. This is especially true given the COVID-19 pandemic, which forced companies to either adopt or improve existing digital and tech tools swiftly.
However, there are several factors to consider when selling a tech company to achieve the greatest return. Keep reading to learn more about these factors and how to best sell a tech company.
You may be thinking that selling a tech company is no different than selling any other type of company – however, you would be incorrect.
So, what makes selling a tech company so unique?
1. A Professional Technology M&A Advisory Firm is Crucial
Selling a technology or digital company requires specialized resources due to the very nature of the company. One such specialized resource is acquiring unique expertise to help with the sale of your tech or digital company. Hiring an advisor with little or no experience in the tech mergers and acquisition (M&A) industry may mean that their buyer database is not a well-suited match. Furthermore, their lack of expertise in the tech M&A market will slow down the acquisition process.
A tech M&A advisor will have the necessary knowledge and expertise to guide you through all stages of the acquisition process. This begins with the valuation of your company. Tech and digital companies are not valued in the same way as other companies, primarily due to the nature of the assets.
2. Classifying Assets and Valuing Your Company
Tech companies tend to have fewer tangible assets, which are physical assets with a finite monetary value that depreciate over time. Instead, tech companies often come with other intangible assets, such as patents or intellectual property, that offer greater value long-term. For example, a patent for a new technology could continue generating money for decades, whereas the products that are produced from this patent may have value in inventory for only a short period.
Rather than physical assets, digital and tech companies are built on research and development, organizational strategy, brands, customer and social relationships, computerized data and software, peer and supplier networks, and human capital. These all come into play when valuing a tech company, and the right M&A advisor will be able to value them accordingly.
A tech M&A advisor will have the necessary knowledge and expertise to guide you through all stages of the acquisition process. This begins with the valuation of your company. Tech and digital companies are not valued in the same way as other companies, primarily due to the nature of the assets.
3. Don’t Be Geographically Tied – Be Digitally-Optimized
The omnipresence of tech and digital companies also adds significant value. Since these companies are not geographically restricted in their management or operation, and can operate globally from the start, it means that there is less customer concentration risk by geographical area. This increases the valuation. Furthermore, digital and tech companies are often not bound by physical borders. During the COVID-19 pandemic, when borders were periodically closed, it did not have an effect on investors who were considering a tech company that is fully digital, and thus not restricted by such border closures.
4. Have a High Scalability
Another aspect that an advisor or investor will consider when valuing your company is its scalability. This refers to the ability of the company to sustain rapid and tremendous growth without increasing operation costs tremendously. When considering a software product, scalability refers to the software’s ability to be expanded easily to manage workload increases using its current infrastructure. Software systems that are not scalable often require the purchase or development of entirely new systems or significant rewrites to the existing system. This is one reason why having a team of engineers in place is also considered valuable.
An experienced M&A advisor within the tech industry will be well-aware of all these points and can accurately and efficiently value your digital or tech company. An M&A advisor without up-to-date market knowledge or expertise in the digital industry will have much more difficulty and may not provide the most thorough valuation of your company.
Want to Sell Your Tech Company?
You now know that finding the right M&A advisor in the tech or digital industry is crucial. But how do you know the best time to sell your company?
The short answer is when your company is growing or at its peak of development – think high traffic, rapidly increasing revenue, excellent brand recognition, and having a professional team in place. This will be the easiest time to find a buyer.
The longer answer involves, among other things, preparing before showing your company to prospective buyers. Before the onslaught of due diligence requests, it is imperative to prepare current financial statements, as well as frequent audits if your company is venture-backed (this is to ensure that all transactions have been accurately recorded and standard Generally Accepted Accounting Principals, or GAAP, have been followed). It is also essential to verify and develop all documents relating to employee onboarding, including confidentiality and non-compete agreements, prior-inventions intellectual property contracts, and at-will work agreements. Having all of your documents prepared and up to date will ensure a smoother transition during the acquisition process.
