Successful software companies inevitably consider the idea of selling; some might even get solicited by larger organizations or Private Equity (PE) firms as acquisition target candidates often jumpstarting discussions. For those that decide to enter into serious negotiations, the work involved in preparing themselves for a potential sale can be daunting. Every conceivable detail about the company’s ownership, incorporation details, finances, portfolio, intellectual property, operations, staffing, partnerships, customers, legal matters and overall performance (past, present and future where applicable) must all be gathered, vetted, organized and made available for review. Each element will be scrutinized in exhaustive detail with numerous requests to provide more clarity and data. Mergers and Acquisitions (M&A) is a serious matter for both the buyer and the seller and these efforts, whether successful or not, often require the added services of external professional organizations who specialize in these types of transactions.
Numerous factors affect the valuation and, eventually, the selling price of a software company being acquired. While M&A deals are always unique, the following items almost always factor into valuation determinations:
- Financial Performance – Historical and projected revenue, profitability and growth are crucial 1,3. Recurring Revenue (Annual and/or Monthly), average customer acquisition cost, and EBITDA are specifically important for SaaS companies 2.
- Market and Growth Potential – Market dynamics, remaining addressable market, and visible growth prospects (especially for companies serving large, growing markets with genuine market expansion potential) are all critically important considerations 1,3.
- Technology and Product – The overall quality, architecture, technology stack (old or modern) all greatly influence assessed value in the form of technical due diligence1. Source code management, the amount and types of automated testing, deployment considerations, reliance on third-party controls or libraries and their licensing implications, adherence to recognized architectural best practices and patterns, documented internal standards and guidelines for all facets of product technology and others get closely examined.
- Customer Base – The measured or understood degree of their satisfaction, retention metrics, willingness to be used as a reference, and demonstrated additional business successes within the existing customer base will always weigh heavily on the attractiveness of a potential acquisition target 1,2.
- Risk Factors – details such as legal compliance, integration risks and challenges (especially where technology debt is concerned 3), and strategic alignment will be carefully considered.
These insights are shared to serve as sobering reminders to eliminate technical debt from within software products prior to an M&A event so that the software is beneficial to the transaction and not a risk. The notion of undergoing Application Modernization has existed for years although it has traditionally been viewed as a costly process that yields underwhelming results. Aspen ESS built our Warp Drive Engine™ to overcome these specific challenges with older business software and software portfolios.
Aspen Warp Drive Engine™
Aspen is the result of more than a quarter century of trying to solve the age-old questions in IT – how can my team go faster, produce more features, improve quality, and lower costs? Using traditional software development processes and tools – Agile included – when trying to modernize older business software doesn’t get the job done. So that is why we created Aspen’s Warp Drive Engine™.
- Application Source Code. Aspen’s Warp Drive Engine™ creates all the source code necessary to run your legacy software application. The code that is produced is standardized, which makes it easy and faster to enhance in the future. It is also consistent, which makes it easy to support and the code is hardened which makes it secure. Aspen can future proof your application, reducing the technical risk of an app modernization project and significantly improving productivity, all in a few minutes.
- Migration of Business Logic. Database business logic is extracted and placed into the application, exposing it so that it can be enhanced in the future. Multi-logic instances are consolidated so that the application is consistent, making it easier to enhance and support in the future. You can even add your own custom business logic.
- Creation of Automated Tests. We create all the automated integration and unit tests that the application needs, and we subject your modernized application to third-party testing via SonarQube™, giving you confidence in the quality of the application produced (cybersecurity testing included!).
- Creation of a Suite of APIs. We create all the APIs that your modern application needs in both REST and GraphQL formats. The APIs are now the single gateway into the application logic and data tier making it much more secure.
- User Interface Development. A Starter React and Tailwind-based User Interface is created during a job run, allowing you to use the application immediately and fine tune the user experience over time. The user interface uses all recently created APIs, making it secure and consistent.
- Creation of CI/CD Deployment Packages. We provide you with a complete deployment package for Azure and AWS (coming soon) improving productivity. You can choose to host your application with us, until you’re ready to move it. The code is yours, there is no vendor lock-in with Aspen, ever.
If you would like to learn more about our solutions, contact us at info@aspeness.com or visit our website at www.aspeness.com.
Todd Ingersoll
With over 20 years of experience serving multiple roles inside successful enterprise software and services organizations, Todd has been expressly interested in successfully overcoming app modernization challenges. His first-hand experience and dissatisfaction with the limitations and business impact of the traditional options of application modernization led him to create Aspen ESS. Aspen ESS was created to give organizations rapid, reliable, scalable, and extendable solutions to challenges with legacy software products and portfolios.
References:
1 – The Essential 6 Factors for Software Founders Planning an Exit – SEG (Nov. 3, 2023)
2 – SaaS Valuations: How to value your software company in 2024 – Kalungi (Mar. 31, 2024)
3 – 6 Factors That Can Determine Your Tech Company’s Valuation – Austin Dale Group, Inc. (Sep. 27, 2023)
