M&A Advisory

Tech Services Provider Acquires Software Development Tool Provider

Challenge:

Shareholders of a software development tool provider (client) sought to harvest investment, allowing shareholder liquidity and the CEO the opportunity to retire. On the face of it, the client company appeared to be a run-of-the-mill software purveyor, focused on a legacy market (legacy software modernization) with little growth and below-industry financial performance.

Solution:

Strategy was developed to position client IP as route to materially enhance gross margins of technology services companies. A process was run to identify those services companies and the messaging to best approach them to generate interest in the concept:

  • Crafted market positioning and messages to align client with tech services companies focused on manual legacy code modernization
  • Modelled ability for tech services companies to significantly enhance gross margins through automating much of the manual process for modernization
  • Identified and approached small set of international legacy modernization services companies headquartered in US, EU, Israel, and Oceania
  • Demonstrated near 60% increase in gross margin for Israel-based legacy modernization firm
  • Negotiated and consummated transaction with Israeli firm within 45 days

Result:

Shareholders realized 3.5x revenues enterprise value for a company that the general market otherwise would have valued at little more than 1x revenues (5x EBITDA). CEO was able to retire and transition within 6 months.

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