Thinking about selling your tech scaleup? Here’s our countdown to a sale

Your business is growing quickly. Your innovative technology and stellar sales team are attracting new customers and revenues are increasing. But at the back of your mind, you’re also thinking about selling your tech scaleup. There are many reasons for selling besides financial liquidity, but before you go any further, take a look at Hampleton’s countdown to a sale.

After closing more than 100 tech deals across every tech sector, we know that every sales process is unique and has its own characteristics. But we also know that there is a core, iterative process that runs through most tech scaleup sales. There’s usually overlap between the phases, but for reasons of clarity let’s assume it’s linear and this is how it normally runs:

‘Fail to prepare and prepare to fail’ is a well-known saying for a reason. It’s vital that you work closely with your M&A advisors to gather and then prepare all the information you’re going to present to potential buyers in advance.

Companies are often surprised by how intense this preparation phase can be, but it is vitally important when you are creating the essential marketing materials for your company that could influence the final valuation.

You only get one chance to make the best impression. The way your company's financials, intellectual property, people, processes and systems, and the reason why you are looking for a strategic or financial buyer, are presented can make an enormous difference to potential buyers’ understanding of the value your company could bring to them.

This is also the time to ensure that you and your management team commit to and make plans about how to keep running your business successfully. It is not the time to be distracted. Missing revenue targets or losing key customers during the process can leave you dead in the water. Ensure it’s clearly understood amongst the board who is focusing on what and that sufficient time and resources are devoted to the task ahead.

Your advisors will identify different buyer groups. It’s important to keep your mind and your options open at this point.

The sands of the IT industry are constantly shifting as new sectors emerge and existing sectors combine and consolidate. You may be as likely to be bought by a close competitor as by a company in a completely different sector that will use your company as a strategic acquisition to move them into a new space.

There may be five or more buyer groups, and each company in each group needs tailored messaging and explanation about why your company is an attractive acquisition for them. Individual companies may be looking at different aspects of your operation to help them solve their business issues and all will have their unique reasons for considering the acquisition. They could include looking for assets such as new technology to help them accelerate their product roadmap, quick revenue or margin gain, the potential to enter new markets or sectors and many other reasons. All need to be carefully mapped and managed.

Reaching out to potential buyers is a lengthy sales funnel process. The biggest and most acquisitive tech companies can get hundreds of approaches every month, and thus may be structured to make direct contact difficult. That’s why it is important your advisors make the process efficient and targeted by having key relationships already in place, the sector expertise, and the resolve to engage with the target whatever it takes to get their attention and fully understand the opportunity.

During this phase, a lead buying group will start to emerge. They will want initial meetings, under NDA, to establish more details about the information being provided. Increasingly, and especially during the COVID-19 pandemic, as the clock speed of the technology industry increases and cross-border deals predominate, these initial calls are likely to be done via video conference. 

In fact, whilst most nations were in lockdown, Hampleton Partners recently completed a successful international sale in just over six months, with no physical meetings at all, between the U.S-based acquirer and the Northern European seller.

There is an opportunity cost of pursuing any one opportunity on the buyer side. Together with your M&A advisors, you’ll establish early on if the potential buyers are going to put in the considerable resources necessary from their side to go onto the next stage of due diligence and include or exclude them as serious potential bidders. 

Once initial meetings have concluded, then you’ll need to open the Data Room. Every piece of information that your potential buyers will want to review for evaluation and suitability is uploaded and managed, usually, via a third-party technology platform. The documents will not only focus on revenues and other financial information but will also include important evidence about how you’ve been running the company and your intellectual property ownership. And, of course, with the placement of the documentation comes a myriad of questions that will have to be answered satisfactorily and carefully logged.

There are several elements at play during this phase of the sale.

Ideally, your advisors will have been able to engage with several buyers vying for preference. At an optimum point, they will invite potential buyers to submit non-binding Letters of Intent (LOI) outlining the shape of the deal envisaged. The LOI sets out what the buyer is prepared to offer, at what price and with what conditions.

This is also the time when some companies who expressed early interest decide the process is not for them and start dropping off the potential buyer list. 

But ideally, an auction process will begin to be engineered and a lead bidder emerges who sets the tone with the highest price and best conditions. This is when you and your management team work with your advisor to assess what’s on offer and give constructive feedback if you think your buyers are short of the financial mark or you have other areas where you’d like to suggest improvements.

Other potential buyers, too, will be told what they need to do to improve their offer for a chance of staying in play. 

Now, the lead bidder may want a period of exclusivity in which to negotiate the Sales and Purchase Agreement (SPA). This exclusivity period is always negotiable. Your advisors will also help ensure that any other potential buyers are kept engaged, should they need to be brought back into play.

Then you really are into serious due diligence across the whole company. Your potential buyer, and their team of advisors will check and double-check every document and statement available in the Data Room - from legal to commercial, from IP to HR and more. This may also require extended meetings with the potential buyers’ advisors.

Now, after all the to-ing and fro-ing, it’s the moment you’ve been working towards. Sitting in a room, or on a secure video conference, with your management team, your lawyers, your M&A advisors, plus the buyer’s team and advisors, giving the final sale documents one last read and then signing them one-by-one, either in ink or electronically. It’s a process that can take anything from a couple of hours to a day in some cases.

And then there is the moment you’ve worked for years to achieve. You’ve sold your tech company - time to celebrate!

Are you thinking about selling your tech business? Talk to our experienced M&A team of advisors.

To keep up-to-date with the latest technology trends, plus merger and acquisitions activity, subscribe to https://www.hampletonpartners.com/reports/ for free access to 12 Hampleton Partners’ M&A Market Reports every year.

Read other parts of this series: 

Part 1: Why tech scaleups are key to turbocharging the UK economy

Part 2: Five UK tech scaleups most likely to succeed

Part 3: Are UK scaleups facing a skills gap?

Part 4: Five mistakes to avoid when selling your tech scaleup

Part 5: Thinking about selling your tech scaleup? Here's our countdown to a sale