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Deciding you want to sell your software business is one thing, getting a good deal from it is something else.
Even once you’ve found a good buyer who you believe will be a good cultural fit and take the company you’ve worked so hard to build in a good direction, you need to be able to negotiate a good sale.
So what issues do you need to cover when you’ve got the other party sitting across the table?
Before you get into the nitty gritty, you will likely negotiate the framework of the deal itself. Just about every acquisition today will feature either a memorandum of understanding (MoU) or a letter of intent (LOI) that sets out the basis for the larger sale. An MoU is a preliminary agreement showing the parties’ intent on making a deal happen, while the LOI, while not constituting the actual sales agreement, but rather lay out the key assumptions and what precisely it is that the counterparties will be negotiating.
They will typically come in tandem with an exclusivity agreement that would preclude any other buyer from going for the sale while negotiations are ongoing. This is usually the only part of the LOI that is binding.
Points outlined in an LOI can include the transaction price itself, the payment structure of the consideration, details that still need to be negotiated and any other requests from either party.
Just because it’s not the final deal doesn’t mean there’s no negotiation involved at this stage, though. Drafts can be sent back and forth between buyer and seller so both are on the same page, and either can make changes and tweaks that will have to be cleared by the other before it is signed.
The main thing is the transaction price, this will normally be negotiated in advance of the LOI being signed, but there will need to be work done to make sure its a fair price - for example, if the price is a mix of cash and shares - which usually comes with clauses stipulating that they cannot be sold for a number of years post-purchase - the seller will need to make do their own valuation work on the buyer to make sure their shares are fairly valued.
There’s no getting around this one. Any buyer will, and should, be able to get a full look under the hood to make sure everything is in working order. As a seller you should do your best to make this process as easy and smooth as possible for the buyer - not only does this reduce the time to closing, but it also generates goodwill with the people across the table from you.
Issues that will likely come up during due diligence include:
Financial
Tech/Contracts/Legal
Sales/Customers
Additional points that will likely come up during a sales negotiation include:
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About us
Threecolts acquires, launches, and grows eCommerce software & services, and owns other stellar businesses including Old Street Media, HotShp, SellerBench, Tactical Arbitrage, Bindwise, RefundSniper, ChannelReply, and FeedbackWhiz.
Old Street Media supports businesses with their advertising, inventory management, and other eCommerce services. We collaborate with over 4000 brands and have generated $600M in sales in the past year.
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