M&A and Value Drivers

M&A and Value Driver Analysis

There are measures you can take to improve the value of your tech, software, or internet business, just as there are ones you can do to boost the value of a house — completing a basement and painting high-traffic areas spring to mind.

The Top M&A Value Drivers for Tech and Software Firms

These behaviors are known as “value drivers,” and we’ll go through the most important ones in this post. We shall, in particular, introduce you to the notion of value drivers and their significance.

Outline the most important value drivers that might affect the value of your tech, software, SaaS, or internet company.

Determine specific actions you can take to increase the value of your company.

So, what exactly are you waiting for?

An Overview of Value Drivers

Understanding and strengthening the value drivers for your tech, software, and internet businesses is crucial to increasing the value of your firm before selling it.

What is a Value Driver, and how does it work?

Any activity you may do to possibly increase the value of your company is referred to as a value driver.

Recurring income, for example, is the most important value generator for technology, software, and internet enterprises. You may focus your efforts on enhancing this value driver if you know it is the top ‘driver of value’ for your company.

Value Drivers Can Cross Over, Especially in Technology and Software Firms.

It is possible for value drivers to overlap. A single value driver can have a beneficial impact on a variety of aspects of your company.

Increasing recurring income, for example, might have an influence on a variety of value drivers. Increasing the LTV (lifetime value) of your customers, on the other hand, can substantially alter the dynamics of the assumptions in your business plan, affecting numerous value drivers at the same time.

Prioritizing Your Value Drivers Is Critical

Your company’s worth is in the eyes of the beholder, and each buyer will place a higher priority on certain value drivers than others.

When determining which value drivers to address first, the counsel of an experienced M&A adviser is important. A qualified adviser can assist you in identifying the value drivers that are most likely to provide you with the best returns while posing the least risk.

When going through the value drivers listed below, keep in mind that the list isn’t black-and-white; there may be overlap between and within the value drivers. Regardless, identifying prospective value drivers is an important part of growing the value of your company.

An Important Point to Consider Regarding the Value Range

Depending on who the buyer is, the value of your company will vary greatly. Consider the following scenario:

Unless they hold a portfolio firm with the potential for strategic value, financial purchasers are limited to evaluating a company based on its fair market value (FMV) by paying a multiple of profits (EBITDA).

Strategic purchasers are more inclined to pay a higher price (or strategic value) depending on the potential value of the combined synergies and the degree to which you can negotiate a portion of those synergies.

The price discrepancy between a financial buyer’s willingness to pay and a strategic buyer’s willingness to pay might be substantial. Your value drivers will be viewed differently by each company, whether individually or collectively. Because valuation is subjective, it varies from buyer to buyer.