Investing in Tech: Tips for Finding the Best Technology Business Brokers
| April 2023
Despite dramatic global events, it’s still a good time to own or acquire a tech business. According to 451 Research's annual Tech M&A Outlook survey quoted by S&P Global, 46% of respondents predict an acceleration in tech M&A activity in 2023.
With new technologies like AI and machine learning accelerating rapidly— as well as the higher dependence on innovation in the wake of the COVID-19 pandemic — keen buyers will be looking for the best opportunities, and many sellers are slated to do well.
Whether you want to sell or buy a tech company, a professional technology business broker can be an extremely helpful guide. They’ll be able to advise you on unique factors that can affect your transaction, while also staying on top of the dizzying trends and ensuring the deal you make is as lucrative as possible.
How A Technology Business Broker For Sellers Can Help
You might be ready to put your business on the market, but there are numerous things to consider when it comes to your position before buyers. Everything from your daily dependence on key staff members and exposure to cybersecurity risks to your financial performance and consumer behavior within your particular market segment will affect how sellable your business truly may be.
If you’re trailing behind in these areas, you might find it hard to attract serious buyers who are willing to pay a high price.
Working with a broker can help you maximize the value of your company long before you sell — and in turn, raise the attractiveness of your brand among buyers. Here are a few things they’ll be able to do for you in the process:
| Accurately Valuing And Raising The Worth Of Your Business
Sharp brokers in the technology space know the various factors that affect the value of businesses, both financial and otherwise. They’ll be able to advise you on the most important elements to help you avoid lowball offers when it’s time to approach buyers.
First, your broker may choose from several common valuation formulas, including EBITDA (earnings before interest, taxes, depreciation, and amortization) and SDE (seller’s discretionary earnings), to initially value your venture.
A multiple is then applied to determine a dollar amount that represents a fair sale price for your business. Depending on the type and size of the tech company, a business can be valued as high as 4-6x EBITDA.
Beyond this, a broker can help you build more value into your venture by improving your operational efficiency, lowering costs, and making your products and services more marketable.
By implementing proven growth strategies, your broker can help you see a substantial increase in revenues — and the overall value of your business — a year or more before the sale.
| Helpful Advice And Direction In The Due Diligence Process
It’s common to feel overwhelmed when it’s time to do your due diligence.
A professional technology business broker can help reduce stress and help you take stock of your venture’s operational, financial, and legal status as you continue to run your business day to day.
For instance, they’ll help you gather and organize profit and loss (P&L) statements, balance sheets, cash flow statements, contracts, intellectual property (IP) agreements, tax returns, and much more.
A broker can also help you anticipate a buyer’s possible sticking points when it comes to their audit of your venture’s health, and address them ahead of time to increase the chances of the sale going through successfully.
If a buyer is especially serious about cybersecurity, for example, and you’ve had several vulnerabilities in the past, your broker can help you patch those issues and fully prove to the buyer you’re up to standard in this area.
| Access To Qualified, Serious Buyers
A technology business broker who is fully involved in the space will have a fresh network of highly-motivated buyers they can tap into at any given time. As a result, they’ll also be in the know about new drivers of value and growth for active businesses.
This makes the right broker an effective advocate and representative on your behalf. They can connect you with qualified parties, such as venture capitalists and strategic enterprise buyers who want to make a serious investment.
Confidentiality is essential, and a great tech business broker will also ensure your sale activities are kept under wraps, so your proprietary processes and IP aren’t compromised. They’ll ensure a non-disclosure agreement (NDA) with any serious prospective buyer is in place to safeguard your company along the way.
Ways That A Technology Business Broker Can Help Buyers
Just take one look at the AI and machine learning firms, SaaS cloud platforms, cybersecurity firms, healthcare IT companies, and eCommerce businesses springing up — and you’ll see there’s no shortage of tempting acquisition targets for buyers.
The demand is there for a good reason, but it’s essential to avoid striking a bad deal. Many tech companies simply won’t last.
A professional technology business broker will be able to spot which ones aren’t worth buying while also making you aware of the most promising, compatible, and valuable opportunities. Specifically, here are a few ways the right broker will help:
| Undertaking Careful Risk Assessment
There are many areas of hidden risk that a savvy broker can protect you from.
These include factors that speak to the target company’s financial health and real-world prospects for growth. A good broker will evaluate the target’s overall business model, as well as audit cash flow statements, balance sheets, and other financial documents to look for signs of sustainable recurring revenue and growth prospects.
Even if the numbers are good, a broker can dig deeper to help you avoid any potential misalignment with your current business or investment strategy.
Intellectual property (IP) and proprietary tech are other concerns. A good broker will help evaluate the strength of a target company’s copyrights and patents and ensure they’re being enforced properly to minimize your risk as a buyer.
Finally, a broker will look at other areas of exposure, such as long-standing debts, legal problems, and overreliance on key staff. They can determine if eliminating such risks is possible or if moving on to another prospective target ultimately makes the most sense.
| Forging Strong Connections Between Leadership Teams
Effective communication is at the center of any successful acquisition.
Your technology business broker should be a reliable advisor when it comes to finding points of synergy and establishing a healthy dynamic between both parties. This only builds a reservoir of trust and respect and can help the relationship move forward to everyone's benefit.
It all starts, however, with a broker's influence at the negotiating table. Once they facilitate a healthy cadence of meetings and a spirit of transparency and fairness, both buyer and seller can walk away feeling good about the transaction.
| Integrating The Innovation Capacity Of The Target Company
You’ll want to make the most of the IP and development team of the business you buy. A capable technology business broker will be prepared to suggest ways to do so.
As a first step, they’ll help you secure rights to important proprietary tech. That can include walking you through license agreements and other documentation so that you fully know your rights post-acquisition.
As a result, you can rest assured your business won’t be in any legal hot water, and you can get off the ground quickly in using the new assets to drive profits and growth.
A broker will also look for ways to retain the developers and engineers who created the tech you’re acquiring. This could range from negotiating retention agreements to allowing the team to remain an independent unit. An experienced tech business broker will walk you through the possibilities.
What To Look For In A Technology Business Broker
Tech businesses, notoriously, are volatile in terms of value. Add that uncertainty to the tumult of the buying or selling process, and it can quickly get out of hand for anyone who hopes to strike a good deal.
That’s why it’s worth taking the time to choose the right broker as you embark on the journey.
Make sure the technology business broker you work with offers the following:
Ability to follow fast-moving trends. A good tech business broker won’t be daunted by the rapid pace of new trends. They’ll follow them with interest, including which emerging technologies will be most marketable and valuable on either side of a business sale, and will know how to handle the nuances of IP ownership and licensing.
An analytical approach. A great broker will be guided by the data and employ high analytical powers in every aspect of the sale process, from making financial forecasts and spotting hidden risks to uncovering business growth opportunities.
An eye for detail. A good technology business broker will look around every corner, pay attention to every key performance indicator (KPI), and follow every development in your specific sector that could impact the outcome of the sale.
In an industry as rife with complexities as the modern tech space, you’ll want a broker by your side who’s sensitive both to your needs as well as the trickier aspects of evaluating opportunities and closing deals.
How A Raincatcher Broker Can Help
If you’re in the market to buy or sell a tech company, one of the experienced technology business brokers at Raincatcher can help.
Our brokers have many combined years of experience in the tech M&A market. We know how to navigate all the complexities of the sale process, including getting you through due diligence, ensuring a good match that's satisfying on both sides of the table, and closing a deal with financial upside for both sides.
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