An estimated 65% of all acquisitions fail. It’s a sobering statistic. The buyers
undoubtedly conducted extensive due diligence. Why, then, were they surprised later
by substantial shortfalls in projected revenue, customer base erosion, earnings
dilution, product integration nightmares, or the rapid departure of key management?
Most often, it’s because the buyers didn’t truly understand critical elements of
the seller’s business, or anticipate the post-closing impact of the acquisition.
Acquisition success requires an intimate knowledge of private company operations,
finances, product strategy, distribution channels and market strategy. That’s our
bread and butter. We help buyers choose wisely, assess astutely, value intelligently
and structure transactions that can better the odds and the outcome. It’s this unique
combination of investment banking skill and unmatched industry expertise that distinguishes
Software Equity Group from other firms.
- Our firm is well-known and highly respected worldwide by software and technology
entrepreneurs, public software company senior executives, venture capitalists and
private equity firms.
- We have profound knowledge and understanding of the software industry and the technology
markets we serve.
- Software Equity Group has guided, mentored and represented more than one thousand
public and private software and technology companies worldwide, including both buyers
and sellers, in North America, Europe, the Middle East and Asia-Pacific.
- Some 10,000 industry decision makers in 26 countries rely upon our research and
analysis of the software and technology equity and M&A markets.
- We are strongly committed to success and enjoy an impeccable reputation for integrity
Software Equity Group’s primary buy-side objective is to facilitate transactions
that satisfy the anticipated returns on investment of our clients. By utilizing
our extraordinary industry network and employing a proven buy-side methodology,
we help our clients acquire strategically, assess insightfully, value intelligently
and structure transactions to better assure the desired outcome.
Our buy-side clients include smaller public companies seeking to outsource or supplement
their corporate development teams; large public companies requiring special assistance
to find and qualify a highly strategic acquisition; and private equity firms desiring
in-depth domain expertise to more insightfully analyze a buyout candidate.
Our approach to buy-side mergers and acquisitions is comprehensive, hands-on, and
results-driven. Though the actual process may vary, here's a step-by-step overview
of our typical approach:
We begin with extensive fact
gathering and a detailed strategy session. Our objective is to define and clarify
with client senior management its specific acquisition goals and objectives, including
the desired return on investment.
While most acquirers are certain they know what
they’re looking for, few consider the plethora of collateral issues that cause so
many acquisitions to fail. The technologies should be compatible, but do the distribution
channels of buyer and seller need to align? How important is recurring revenue in
comparison to growth rate or the strength of the management team? What if the acquisition
was mildly dilutive or the seller’s target market fundamentally different from the
Initial impressions are important, and presenting an acquisition opportunity to
a target seller is no exception. We understand, intimately, the mind set of private
company software entrepreneurs/principal shareholders. Many are receiving numerous
inquiries about their acquisition receptivity. To effectively stimulate target seller
interest, we typically prepare a Briefing Memorandum that provides a compelling
overview of our client, its finances and relevant valuation measures (if publicly
reported), products, target market and market opportunity, as well as the Client’s
acquisition objectives and parameters. Our objective is to carefully and strategically
position our client as an ideal merger partner with size and synergies that could
significantly leverage the target seller and enable it to reach its true potential.
We begin with our proprietary database of software
and technology company buyers and sellers – tens of thousands of companies, painstakingly
compiled over the past 15 years and continually updated. That’s our starting point.
Next, we access our vast industry network that includes public and private software
company executives, industry press publishers and reporters, industry analysts,
industry association directors, venture capitalists, private equity firm managing
directors, and industry related attorneys, accountants and consultants. We also
leverage our client’s market knowledge and industry contacts to leave no viable
prospect unidentified. The resulting product is a solid list of qualified acquisition
candidates that are summarized and presented to the client for first round review,
prioritization and approval.
Once the initial list is approved, SEG contacts
priority candidates by email and telephone. We introduce our firm, present the opportunity,
and assess the target’s initial interest. If the candidate is willing to engage
at this juncture, we’ll seek to learn more about its product offering and business.
If the candidate is amenable, we’ll request relevant financial performance data,
suggest an introductory phone call or meeting with our client, and arrange for the
exchange of a mutual Confidential Information Agreement.
We coordinate the initial
meeting or teleconference with each candidate, set the agenda in concert with our
client, and actively participate. This first meeting is a vital element of
our screening process. Having guided and represented many hundreds of sell-side
software and technology companies, we can provide our buy-side clients with unique
analysis and profound insight.
Should our client opt to continue discussions beyond the first round, we’ll
engage in far more thorough and detailed analysis of the target’s business,
including its products, technology platform, sales and distribution model,
market opportunity, customer base, pricing, historical financial performance,
future projections, competitive landscape and management team.
SEG will often assess the fair market value of the
candidate selected by our client for acquisition. While this valuation is not intended
for use as a fairness opinion, it can comprise a valuable data point for our client’s
internal use when structuring an offer. Our assessment of fair market value, expressed
in a range, ordinarily utilizes industry appropriate valuation methodologies, but
also reflects a variety of qualitative factors which we subjectively apply. The
quantitative component typically considers discounted cash flows, factoring in residual
values, as well as EBITDA, free cash flow and/or revenue. The results are then assessed
in comparison with relevant public market multiples and comparable M&A transaction
multiples. On the qualitative side, we seek to reflect the valuation realities of
the marketplace. Our quantitative valuation range for the seller is adjusted upward
or downward, based upon the presence or absence of certain factors upon which buyers
place great positive or negative value when deciding how much to offer.
After consulting closely with our
client, we lead negotiations with the target candidate, focusing initially on purchase
price, form of transaction, form of consideration, payment terms and deal structure.
We believe it‘s in the best interests of our client to address key deal terms and
known issues at this juncture, rather than defer discussion until much later in
the process. These key elements are then memorialized in a reasonably detailed,
non-binding letter of intent we typically help draft in concert with our client’s
attorneys. The LOI will ordinarily identify working capital requirements and adjustments,
seller liabilities to be extinguished or assumed, indemnity escrows, due diligence
timing, employment of key management, and the no-shop/exclusive negotiation period.
In the current regulatory environment, today’s
buyers – particularly public company acquirers – require a detailed, thorough examination
of the seller’s business, finances, assets and records to confirm their perceptions
of the seller’s value and identify and quantify any seller-related risks. The process
can also aid post-closing integration by illuminating areas that may require special
buyer attention. SEG helps facilitate the due diligence process communicating frequently
with the client’s attorneys and accountants to help clarify and resolve issues as
During the drafting and negotiation of the definitive
agreements, communication often breaks down, emotions surge and crises frequently
arise. Our extensive sell-side experience enables is to be especially adept at anticipating,
addressing and resolving seller related issues that could needlessly imperil a transaction.
We pay particular attention to the timing and structure of closing payments, and
we’re intimately familiar with structuring earn outs and other contingent payment
arrangements so they’re perceived to be incentives, as intended. When opposing lawyers
dig in, we’re usually able to shed light, clarify concerns and bridge differences
over such issues as the nature and scope of representations and warranties, indemnity
escrows and post-closing liabilities, non-compete and employment agreements and
state sales tax liabilities.
The period from initial engagement to closing can vary from several weeks to many
months, depending upon the specifics of the assignment. The state of the M&A market,
the specific product category and target market, the number and type of seller candidates
serving the market, the complexity of the acquisition candidate’s products and underlying
technology, the buyer’s internal review processes and approval cycles, the style
and experience of each party's lawyers and accountants, and the nature and scope
of due diligence issues. It ordinarily takes from three to eight months from the
inception of the process until an LOI is signed, and another 60 to 90 days before
the signing of definitive agreements and closing.
Our fees are comparable to those charged by other established and successful investment
banking firms. The services we perform for our clients represent a substantial investment
of time and resources. Ordinarily our team of highly skilled and experienced investment
bankers and financial analysts invest many hundreds of hours in each buy-side engagement.
We charge a monthly retainer to defray these costs. If a transaction is consummated,
we also receive a commission, or "success fee", at closing that is based upon a
contractually specified percentage of the total consideration paid.
Acquisition is essential today for companies seeking accelerated growth, new markets,
greater market share and competitive differentiation. The process is complex, multi-faceted
and extraordinarily demanding. Successful acquisitions require a diverse and highly
specialized skill set combining strategic thinking, tactical execution, profound
industry expertise, investment banking sophistication, interpersonal finesse and
negotiation mastery. That’s why buyers come to Software Equity Group.