Evaluating 5 Very Different Approaches to Acquiring a Software Company
December 08, 2022
by an investor from Harvard University - Harvard Business School in Toronto, ON, Canada
Enterprise software is widely considered to be among the world’s best business models. However, for prospective acquirors, getting access to the world’s best business model doesn’t come cheaply: Software businesses most frequently trade at multiples of recurring revenue, which stands in contrast to most other industries in which businesses tend to trade at multiples of EBITDA or cash flow.
But not all software investment theses are created equally: There are indeed several different approaches to acquiring a software company, and each approach presents a different investment thesis, requires different operational and value creation strategies, and is likely to command different asking prices.
Today, I present and evaluate 5 very different approaches that buyers might consider in their pursuit of a software business. Though this list of approaches is by no means exhaustive, it does capture those that I tend to see most frequently. Please enjoy!
Evaluating 5 Very Different Approaches to Acquiring a Software Company
from Massachusetts Institute of Technology in Boston, MA, USA