Saturday, March 24, 2012

Selling a small (software) company

This post is courtesy my friend Wayne Dunne of Portarlington, County Laois, Ireland.  Wayne is a software developer and while his advice, based on his own experience, was for someone interested in selling a small software company, I think it could be applied to anyone selling a small company.  I have his permission to post it.

1. Make sure the buyer is serious, an approach could simply be reconnaissance, depending on who they are.
2. You will need to have a handover period between the sale and when you are finally free.
Make the handover period as short as possible (because after you get paid and it's not your baby you will find that you don't care as much anymore, sad but true)
3. During negotiations befriend the buyer and use terms such as "I will have to bring this back to the shareholders to decide". Make the shareholders appear to be the bad guy that you are both working to please to get this deal through.
4. You will be tied to some sort of non-compete clause, if you plan to break it in the future then offer a global non-compete clause. Due to this being so vast it will be viewed as being unreasonable (in most cases) by the courts and will be omitted from the contract, without breaking the whole contract. (At least in UK law - see Blue Pen Test)
5. As with all negotiations - know what you want going in and ALWAYS be willing to walk away from a deal. If you feel you must complete a deal, you have already lost
6. Talk with your suppliers about the offer, under the guise of "I am looking at doing this, would this impact your relationship with the firm going forward", really you are going to see if some of them are willing to become potential buyers. (More potential buyers means more leverage for you).
7. Find out the real reason they want to buy you and focus on that, for example when McAfee were a far smaller firm than they are today they bought out a similar sized technology firm, (I can't remember the firm) - But they didn't want their technology, they wanted their sales team. Not the reason why you would expect a technology company to be purchased, perhaps something like this is in play here?
8. Ask for things you don't need during the negotiations, maybe say you want to keep two of your best engineers for you next business, then be willing to give up the things you don't need to get more money or to get other things you may want.
9. Get an M&A advisor if you want, but do the negotiations yourself. This is too important to leave up to others.
10. Talk with a tax advisor, structure things is the best way for you to keep as much of the sale money as you can.
11. If they want to pay in installments get as much as possible in a lump sum up front and tie the installments to easily achieved targets
12. Most people are weak when it comes to negotiations; that includes you, but it also includes him, remember that.
13. Don't tell your customers about the potential sale, unless they are so large they can buy you, and you are so important to them that they will buy you.
14. Lastly, always keep in mind that you didn't go looking for this sale, it came to you, if it doesn't happen your life will go on just the way you had planned before this came along.

When I sold my software business a while back it was to my largest customer. But I subtly prepped them for a long time leading up to the sale.

I began the process by talking with them about how companies often get bought out and how products end up failing under new owners who don't have customers best interests at heart and how much of a shame that is. This was dropped into a few conversations over time. The day they brought it up in a conversation rather than me bringing it up, I told them how important the relationship between us was, that it wasn't something they should worry about, and that if that situation would ever arise I would give them first refusal on any deal. That created the buyer for me while it looked like I was giving something away.

From there I slowly worked on making them think they could make my product better than I could till eventually they believed it too.


  1. I would like to suggest before selling software, must be test in functional and non-functional behavior of software.
    Indium Software Inc. Est. 1999 is an exclusively focused independent software testing company. With our registered office in California, partners in other major cities in the US, EMEA and APAC and multiple offshore delivery centers in India, Indium has made its presence felt all over the world.
    We have over the years specialized in software testing with independent and objective methods that minimize the risk of failure of applications and software products. We serve customers across the globe – predominantly in the North American region. We are aggressively pursuing the Social, Mobile & Cloud agenda to position strongly for the emerging paradigms. Indium has strong competency in Banking, Financial Services, Health Care, Life Sciences, and Higher Education domains.

  2. Acetech is a leading software development company with a delivery center in Dwaka Delhi , India.To know more about Acetech services Visit:-


Comments are encouraged. But if you include a commercial link, it will be deleted. If you comment anonymously, please use a name or something to identify yourself. Trolls will be deleted