Putting your company on the market, especially in today's world where tech companies are increasingly more valuable, the kind of deal you want to focus on is the deal that will bring you closer to your desired number.
There are many, many layers to this process and buyers don’t grow on trees, so you have to be aware of some common practices of the industry before you dive deep in trying to sell your company.
On today’s episode of Deal Closers - A Tech & Internet M&A Discussion, Jason and Ron are joined by another Websiteclosers.com broker - Lassiter Mason – and they talk about the process around selling a tech company, industry trends in M&A, and some of the mistakes first-time sellers make.
[02:11] The reasons why tech companies have more demand than brick & mortar businesses:
- People get more and more interested in having things delivered to their home;
- The tech world is continuously developing, and advances are made in robotics or AI;
- The tech side is not location-specific, so it’s much easier to get a deal done.
[04:45] Then and now - the evolution of the M&A industry over the past 10 years:
- Five years ago, anybody with a little bit of spare time on their hands opened up an Amazon account, got widgets on Alibaba and just sold them. Now, you can’t do that anymore. If you’re on Amazon, you have to be far more sophisticated if you’re going to compete and succeed;
- The size of the deals have changed – it used to be hundreds of thousands, now we’re talking about millions and tens of millions of dollars;
- Now, buyers and sellers have the support from professionals like accountants or attorneys, whereas in the past you could hardly find people specialized on these e-commerce needs;
- In the past, all traffic was driven through websites. Slowly but surely, people began selling on Amazon and now almost everybody is in the e-commerce space.
[10:57] Some rookie mistakes sellers make:
- They don’t have good books – You have to have the books before you can go to market because the first question buyers are going to ask is, “Let me see the books.”
- Sellers can get a little crazy on their tax returns – they play around with inventory, which affects the cost of goods sold. This, in turn, affects their chance of getting financed by the bank;
- Sellers take their foot off the pedal and stop trying to grow the company – we always talk about selling on the way up, you always want to sell with growth and you want to continue to grow during this process – this is a two to four months process, so it isn’t something that happens in a day;
- Sellers have expectations that are way beyond what anybody would be willing to pay. It’s important to understand, as a seller, that if your expectations are not reasonable and they’re not within the market, your opportunity to close goes down tremendously because you also have to understand that the buyers that are out there will work with you after the close. If your expectations are too high and you’re pressuring too much, they know what it’s going to be like after closing, and they don’t see you as a “reasonable person”.
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