Maximising value when selling a tech company

Selling a tech company requires strategic preparation to maximise its value. Here are six critical points to consider, that will ensure you attract the best buyers and secure the most favourable deal.

Average Recurring Revenue (ARR)

• Focus on ARR Growth: Increasing your ARR is crucial, as buyers value businesses with strong, predictable revenue streams. Demonstrating a consistent uptick in ARR indicates a healthy, scalable business model, making your company more attractive.

Rule of 40

• Achieve the Rule of 40: This principle states that your growth rate plus profit margin should exceed 40%. It’s a benchmark for balancing growth and profitability, indicating to buyers that your business is efficiently managed and positioned for sustainable success.

Gross Margin Maximisation

• Improve Gross Margins: Enhancing your gross margins demonstrates operational efficiency and potential for profitability. Focus on reducing costs of goods sold (COGS) and optimising pricing strategies to make your business more lucrative to potential buyers.

Growth Initiatives

• Showcase Growth Plans: Buyers are interested in future potential. Outline clear, actionable growth initiatives, such as market expansion or product innovation, to highlight the forward trajectory of your business.

Articulating Future Visibility and Minimising Churn

• One key reason that tech businesses attract premium valuations is their high visibility of future revenue and profits. Tech businesses are often embedded in their customers’ workflow and rarely lose (or churn) customers. Showing that you effectively monitor and minimise churn will help demonstrate clear future earnings visibility and buyers will pay a premium for this.

AI Strategy

• Implement a clear AI strategy: In today’s tech landscape, a robust AI strategy is essential for both optimising business operations and protecting revenue models. Demonstrate how AI is integrated into your products or services, and how it positions the company for future growth. This not only adds value but also appeals to forward-thinking buyers.

Conclusion

Maximising the value of a technology business for sale involves a multifaceted approach. By introducing corporate finance advice that focuses on these key areas, you can present your business as a profitable, growing, and strategically aligned opportunity, attracting the right buyers and securing the best possible terms for your sale.

Written by Emmet Keating, Partner at Headpoint Advisors, Birmingham.