For many tech owners we talk with, we hear a similar story and dream: Start a small tech firm. Build it into a powerhouse. Get acquired by a massive corporation, entering into a whole new tax bracket.
The journey to eventually selling your tech firm can be a long one, full of some highs, such as celebratory moments where growth goals are achieved, people are hired, and milestones are met. Along the way, you had situations where you had tons of money hit your bank account, and conversely experienced the lows of business ownership, too.
It’s hard, we get it. We’ve been in your shoes.
Starting and growing your tech firm, then change….
There’s countless stories of brilliant tech owners, and their teams, who worked their butts off to build something special.
You created a culture that attracts and retains the most committed, hard-working folks who believe in your brand and vision. You were all driven by a goal of achieving something great as a team, rather than by our own individual achievements.
Plus, you were succeeding. You may have made the Forbes list of fastest-growing companies in the US, or made the MSP 501, and were probably growing at a rate of 30-60% each year.
Like many firms, a few years in, your phones may have started ringing with your competitors looking to merge or Private Equity firms wanting you to be in their portfolio of successful companies. It can be flattering to know that some of your peers want to purchase you. And, having a private equity firm interested in you is kind of like winning the M&A lottery, in terms of admiration.
But…the question you’re most likely asking is “what the heck am I going to do after I sell my company? What’s life look like after I sell?”
Acquisition talks can change things.
When you begin talking about merging or acquiring someone else, things will change.
You’ll start handling discussions with more discretion and information shared becomes more of a premium than a norm. You’ll have to change things like working to maximize the valuation of your tech firm, vs top line growth. The mood might change, too, where you focus more on profitability instead of spending blindly.
Some of your team might not like these changes…it’s hard.
A merger or acquisition, while financially rewarding, can be a bit disruptive. So, how do you survive it and what’s life look like afterwards?
For many companies the journey to optimize their firm’s value can take one or two years.
First, assess the situation.
Upon learning that your company is joining with another, you’ll feel some anxiety. This is normal.
The first step in overcoming that is to take stock of the situation through a valuation. You’ll need to figure out where you stand before you can plan where to go.
This should also include a value gap analysis. In other words, what is your current value, what is your potential value, and what are the specific actions you need to take to get the maximum value for your firm. Their 18 key elements that fundamentally drive value. Knowing where you stand on each of those enables you to make healthy decisions about how to position your firm for a sale. The average value gap is about 27%. For most owners that means they are leaving a quarter of their value on the table by not being ready.
Second, seize growth opportunities.
The second key to making the most of an M&A experience is to insert yourself into the integration process in a way that highlights your strengths or allows you to develop new ones.
Most buyers will not pay you for future performance until it is realized. Which is why 90% of transactions have earnouts. Don’t be afraid of earnouts as 76% of the time they pay out at or above expected levels. That said, good earnouts will have both buyer and seller working together to see them achieved.
Most merging companies set up a “transition team”—a temporary but formal group made up of trusted advisors or a team that helps you realize the expected merger synergies.
If you participate in this work, you will have a chance to show and build your project execution, innovation, and collaboration skills, as well as grow as a business professional.
There are skills you’ll learn in this process that will help you in navigating the post-acquisition process, and even how to cope afterwards once you eventually sell.
Third, execution.
Those involved in integration must be able to craft an effective plan, distinguish between “nice to have” activities, overcome obstacles, measure results, and display a host of other execution capabilities.
You must be able to innovate and collaborate with a team, in order to get through your transaction. You have to be willing to embrace the change cycle, as a part of this process. Execution might lead to things like strong feelings of loss or grief, because, after all, you’re talking about shedding something that’s been a big part of your life for a long period of time.
When at this stage of the process, it’s okay to take time to grieve and let go.
Things like seller depression are real. But, this grieving process is also about dreaming again. Even though a part of your life’s journey is complete, you still have time to create new ones. This process will force you to think about your purpose, in a big way.
At iT Valuations, we help firms like yours determine value when it matters most, so you can stop worrying about your M&A transaction process and instead think about what life is like afterwards. Click here to get started.