Acquisition, Legal communicaitons, M&A, Timeline
In general, the same team that runs a merger, acquisition, divestiture, or strategic investment, should also be the point person for the communications plan. Marketing or corporate communications often wants to take this part and run with it, but it is critical that a person that is familiar with nuances of the “deal” take the lead, with Marketing and Communications (MarCom) heavily involved.
For example, any press releases, customer communications, employee communications, etc., need to reflect not only the confidentiality requirements of the deal (or the mandatory disclosures), but also the “spirit of the deal”. MarCom will provide the majority of the content of the communications but must be reviewed by the deal lead for consistency with deal terms and the TIMING. The importance of timing can not be overstated, since if handle poorly it can put the companies at legal risk, not to mention, a bad position for rumors, morale, customer satisfaction, etc.
Acquisition, Valuation Acquisition, Valuation
Negotiations of acquisition valuations for a technology or software company typically center on what “comparabables” or “comps” should be used. Valuations typically are arrived at by “triangulating” on a range of valuations determined via different methods. These methods typically include DCF (discounted cash flows) with terminal values calculated as a revenue multiple, EBITDA multiple, Earnings multiple, and/or perpetual growth (perpetuity).
The comparables are used to determine the appropriate multiples to use on Revenue, EBITDA, and earnings as well as the appropriate discount rate to use for the DCF. There are various comparables to be considered: “trading” (what are comparable companies valued at in the public markets) and “Acquisition” (what valuations have comparable companies been acquired).
Obviously, there are many other considerations that go into valuation (capital invested, cash position, desperation of buyer/seller, etc.) but comparables analysis is a good rule of thumb for valuations.
Acquisition, Valuation Maintenance, Multiple, Revenue, Rule of Thumb, Software, Valuation
A rule of thumb for the acquisition value of a revenue stream from software maintenance is 3 to 4 times trailing twelve months revenue (3-4x revenue multiple). This assumes that the maintenance stream has a high renewal rate (typically in the 85% to 90% range) with high gross margins (80% or higher).
Acquisition, Business Acquisition, LOI, M&A, Rule of Thumb
Most large corporations require approximately 9 months to identify an acquisition target. Once a corporation has defined its strategy and identified a target area for acquisition, it typically takes about 9 months to identify the players in the space, conduct preliminary due diligence, gain necessary internal approvals, and negotiate an LOI (letter of intent). Once the LOI has been signed by both parties, it will usually take 1-2 months to complete due diligence and negotiations so that a Definitive Agreement can be executed. Including this time, a corporation may take as long as a 1 year to complete an acquisition.