Introduction

Software company founders and CEOs continually see messages from private equity (PE) firms land in their inbox. Hidden amongst the many emails may be the perfect opportunity to take your company to the next level or achieve an optimal exit – but how can you know which message it is? The answer to that question is, in part, what this guide aims to provide. 

The reason for the many messages is partly that PE firms have high expectations for software companies. In BDO’s ninth annual Private Equity Perspective Survey, 92% of private equity firm fund managers focusing on technology said they expect the value of their portfolios to increase in the coming years. 

PE managers also expect valuations to increase. 67% of all respondents pointed to technology as an industry that could see valuations increase over the next 12 months - more than any other sector.

This is good news for software companies, many of whom have already received investment from PE firms, with more deals undoubtedly on the way. Technology company CFOs overwhelmingly point to software (including cloud computing) as likely to generate most deals in the coming years. Technology companies are also more likely to be acquired by PE investors than anyone else. In 2017, around 43% of all technology M&A deals were funded by PE. For technology M&A deals worth between $50 million and $1 billion, the figure was 52%.  

Deal flow will likely continue to be high, as PE firms across the globe are sitting on stores of dry powder. BDO’s PE survey shows that 58% of private equity fund managers intend to continue seeking acquisition opportunities over the next 12 months.

Receiving investment from - and thereby potentially being acquired by - PE investors can be great news for a software company. It often boosts revenue. Analysis from BDO UK shows that private equity-owned companies on average increased revenue by 12% between 2016 and 2017. The same companies grew their combined workforce by 8.5% to 311,833 employees.

However, PE can also be a risky path to more capital. PE firms often have goals and focus that differ from other investors, such as VC firms. 

Knowing how to prepare for a potential PE acquisition, what PE firms are looking for, how to negotiate the optimal deal and collaborate with the PE firm post-investment is crucial. In this guide, BDO experts give their advice on how you can achieve the best results. 

They are: Iain Henderson, Audit Partner from BDO UK’s technology and media team, Matthias Meyer, Partner, Advisory Services and Corporate Finance, BDO Germany, Paul Morris, Head of Growth Advisory at BDO UK and Aftab Jamil, Partner at BDO USA and leader of BDO’s global technology industry team.