Practical tips and advice about bringing in new partners or selling your business (from people who’ve been there and done it.)
Whether it’s been in the pipeline for years or you’ve had a surprise offer, bringing in a new investor or partner is often crucial for accelerating growth.
But it’s important not to get swept up in it. Because there’s a lot of work to do before the process even starts – work that will maximise the value of your business.
Hundreds of companies go through this process every year. So we’ve compiled our knowledge into this eBook – to help you prepare for (and complete) a company transaction, without hitting all the roadblocks.
We’ve seen plenty of entrepreneurs do that (and helped many more avoid it).
Before we dig into each stage of the process, we’ll briefly introduce ourselves so we can get to the really important bit – talking about you.
Co-founder and partner, Monterro
“Everybody knows about the transaction process, but no one knows about it. They talk about it, but when they dive in, they realise it’s harder than it looks.”
Advice is only as valuable as the giver, so let’s meet the brains behind this eBook’s insights:
— Co-founder and partner, Monterro
Lars is our resident tech strategy mastermind. He was a first-ranked tech analyst for six years at SEB Enskilda and (because that wasn’t enough for him) he also worked with corporate finance and knows the SaaS world extremely well having been chairman of Benify for many years.
— CEO, Next One Technology
Gunilla has 30+ years of experience in business management and development, with focus on the tech-industry. She’s happiest working with entrepreneurial, and growth companies.
— Partner, Monterro
David lives and breathes deal making. Having spent seven years in the corporate finance industry, focusing on private M&A, David now sources new platform investments and assists our amazing portfolio companies with add-on acquisitions. At Monterro, David has successfully completed in excess of 25 transactions.
— Partner/M&A Advisor, HDR Partners
Carl-Sebastian is a Mergers and Acquisitions guru. He’s had 15 years experience as a corporate finance advisor and has been through countless transaction processes.
And that’s just the start! Our team also included…
— Lawyer and Partner, Andulf Advokat
Martin is a partner at the incredible Andulf Advokat. His deep knowledge of M&A activities, growth and venture investments, and small and mid-sized buy-out transactions (both on the seller and buyer side) makes him an ideal collaborator.
— CEO, Bliksund AS
If you bring together technical understanding, managerial experience, business leadership experience, and a passion for international market positioning, you have the recipe for a great collaborator – and that’s Janne. She’s a serial entrepreneur with extensive experience in building international, high-growth tech companies as CEO, in top management, and as a board member.
— CEO, Matilda FoodTech
Erik has been the driving force behind Matilda FoodTech’s success. He and his team have taken Matilda on an incredible journey of growth – across the Nordics and into Northern Europe. He has deep insight into the ‘new partner’ process having been through it both as a buyer and a seller, and has been in the software business for 20 years.
Ready? Let’s do this.
Your business is your baby. You dreamt it up. You took the risk. You put in the blood, sweat and tears (and paid for the coffee).
So, bringing in a new owner, partner, or investor? That’s pretty scary. But it’s often the best way to let your baby grow-up, graduate, and reach its full potential.
+ Grow your business within the industry, by buying other companies that complement your work to create new synergies. This way, you create something bigger than the individual parts.
+ Accelerate growth you’ve already started, perhaps seeking investment for expansion or scale up.
+ Realise capital and reduce your risk. (Maybe you don’t want all your eggs in one basket anymore.)
+ Bring in a new, experienced, operative owner. Especially for support with big ambitions like international expansion.
Whether you want to look for an investor imminently (or it’s something for later down the line), following the steps in this eBook will put you in the perfect position when you start the journey.
Janne T. Morstøl“In all the different journeys I’ve been on, the main reason for bringing in investors was to take the company into its next phase.”
There are typically three stages to every transaction:
Organisations can get messy – especially when you’re moving fast. But thorough preparation will help you avoid mistakes and get the best offer possible. So get your house in order.
Sometimes interest comes before you’re prepared for it. As hard as it is – be patient. Rushing causes major headaches later on. (Or endangers the whole deal.) Take time to understand what you and your team want, then hire expert advisors to help you get it.
You’ve reached the final hurdle – but don’t jump too fast. This stage is long. Prepare accordingly. Set up a dedicated deal task force to make sure your day to day business doesn’t get neglected in the process. Also, take time to fully understand the offer.
Now we’ll dig into each stage in more detail, with plenty of examples, insights, first-hand advice, and all the lessons we’ve learnt.
If you only take one thing from this eBook, take this: preparation is vital. Yes, you need a great product or service. But you also need to optimise your offering for a sale.
A smooth buying process has monetary value – and the more you can show about your business, the more likely you are to garner premium pricing.
Lars Sveder“If you’re well-prepared early on, you can do a successful transaction quickly. But if you only start preparing when you receive a bid, you’re gonna have problems.”
If preparation is the recipe for success, a shareholder agreement is the key ingredient.
It’s the most important document to prepare – and you should complete it as soon as possible.
Think of it as a rule book that sets out your intended transaction. Aligning around this early helps you agree on shared objectives – and how to achieve them.
Gunilla Åberg“Discuss the vision and goals for the company at an early stage, including the level of ambition of all your shareholders, the timeline for ownership, and everyone’s risk-taking appetite.”
Drag-along regulations in your shareholder agreement are key. Without them, you might end up in a situation like this:
95 out of 100 owners want to accept an offer – but five don’t. Without drag-along regulations, they can block the deal…
Not good.
Your shareholder agreement should also cover change of ownership. Getting this sorted early avoids massive roadblocks later on.
It can be difficult to retrospectively agree on a solution that involves a change of ownership – and even if you can agree, these solutions are often problematic for tax purposes.
David Kuritzén“In the final stages of a software company sale, a founding member revealed that, during the startup phase, a developer had been promised shares equalling 10% of the company value as compensation. Solving this when the value of the company had multiplied was difficult and included huge tax risks.”
Martin Pilotti“Drag-along regulations are extremely important. They enable a majority to force the other shareholders to join in the sale of a company – as such, they lay the foundation for a successful sales process.”
The bricks and mortar: three documents you need ASAP
You’d be surprised by how many businesses turn this building block into a tripwire – especially when it comes to developers and software engineers.
Lars Sveder“We’ve seen situations where large companies don’t have agreements with their employees. If you, as a software company buyer, are dependent on 2-3 developers to build on, and they aren’t employees of the company, it will be a problem.”
It’s not uncommon for these to get messy too. So-called ‘Change of Control’ situations (a customer’s right to terminate if all or parts of the company are sold) often cause problems.
David Kuritzén“It’s so important and can easily be handled in advance. Whilst ‘Change of Control’ is, in practice, a smaller problem for a financial buyer, it can be a dealbreaker for an industrial one..”
The answer? Standardise, standardise, standardise.
While it’s not possible to have 100 identical agreements (as each must be negotiated on an individual basis), if you develop a framework for your agreements, you’ll reap the benefits.
A unified starting point makes it easier for a buyer to review – and guarantees you don’t omit important clauses.
Martin Pilotti“Lots of companies say they’ve got automatic extensions of all their customer agreements, but when you look in detail, the agreements lack the necessary provisions – meaning you have to negotiate at the end of each contract period. This is a red flag for a buyer, as it gives the image of general disorder.”
It’s vital to keep track of IP ownership. All of it. Buyers pay a lot for IP, so it’s a sensitive issue.
Ask yourself these questions before a buyer does: Q: Have you used external code or freeware? Q: How did you handle it? Q: Do your agreements clearly state that those who develop code for the company have transferred all code to you?
Martin Pilotti“Ambiguities about IP ownership arise surprisingly often – and they’re often deal-breakers for buyers.”
One way to tackle an IP challenge, or get it under control, is to conduct an IP scan of your tech stack in advance. This will give you an overview of the situation. You can then either fix challenges that arise, or set up a mitigation plan. These steps will be evident in a transaction – so be one step ahead.
David Kuritzén“If your legal agreements aren’t in order, it’ll get stressful later. Negotiating agreements and obtaining approvals from customers/employees during a buying process damages relationships and causes delays. There’s also a risk that someone you need something from sees a chance to re-negotiate.”
Lars Sveder“Top tip – hire a lawyer to assess your documents before you decide to sell your company. Especially your client agreements, employment contracts, IP rights, and your shareholder agreement.”
The numbers and metrics are your armour.
If you can report key figures like annual recurring revenue (ARR), cost of acquiring a customer (CAC), net retention (measure upsell and cross-sell of your existing customers), and churn (amount of lost customers within a certain period), over a decent length of time, you’ll build the confidence needed to sustain momentum throughout a long process.
Gunilla Åberg“Our mindset from the beginning was to prepare for the due diligence process involved in company transactions. We established order and structure – we had all the agreements, had control over our processes, and set up and tracked KPIs on our chosen criteria. That turned out to be very important.”
You should also identify key criteria and measure them as early as possible. If you can show your track record to an investor, you’ll have an easier time – and you may command more premium pricing.
Carl-Sebastian Zadig“Founders tell us they are well prepared and the house is in order – but that’s normally by a different standard. Once you pop the hood, it’s not spick and span: data is quite messy and KPIs are guesstimates.”
If you don’t have a CFO – get looking.
Historically, CFOs could be seen as a cost centre. But that perception is changing fast, and all our contributors agreed on the importance of investing in one. Not only do CFOs free up time for the CEO and senior management – they’re increasingly at the strategic helm of the whole operation, and crucial to a successful divestment process.
Carl-Sebastian Zadig“Finding a quality person to run the financial side, is just as important as a Head of Sales or CTO – trust me, it’ll pay off.”
If you want to hear our seven golden rules for superstar hiring, read our field-guide to talent
Janne T. Morstol“The biggest lesson I learnt during this preparation stage was – do your homework! Prepare early, and understand that it’ll consume your time and your focus. Instead of thinking ‘how do I win this customer’, I had to think ‘how do I get this investor’. It’s a big mindset change.”
What happens if interest comes before you’re fully prepared? In an ideal world, you’d have all your paperwork in order before you receive an offer from an investor. But we know this is rarely the case. Many founders end up in a situation where someone’s interested – and they aren’t prepared.
First things first: Don’t rush. It’s hard – really hard – but it pays off to take things slow and steady.
What should you think about before a transaction?
This falls into two camps:
Firstly, how much you want to sell. There’s no magic formula – so balance what’s realistic, against your ambitions. Then decide how active you want to be in the company going forward.
A crucial decision to make is the support you want from a buyer. Do you have the experience to meet your goals – and need the financial boost to get there? Or do you have big ambitions and big plans – but you need the experience, help and capital to achieve them?
Gunilla Åberg“Seeing someone new become the CEO can be hard. Our founder decided not to take this role as his strengths were in sales and business development. Understanding what roles the founders want – and that this may change over time – is vital.”
David Kuritzén“It’s important you understand what kind of support your active buyer brings to the table. For example, are you looking to expand abroad, make a switch to SaaS, optimise your processes to scale the business? Once you establish this, I cannot overestimate the value of getting the right operational owner onboard.”
A key subset of financial buyers or sponsors is whether they’re passive or active.
Gunilla Åberg“Choose your investor carefully. You’re going to spend lots of time together, so it’s not the money you should look at – it’s trust. I advise entrepreneurs to contact potential investors, even if you’re not there already, and have a regular dialogue. We got to know Monterro very well – we could have an honest discussion with them. We realised we needed help and support to fulfill the opportunity in the company, not just a pile of cash.”
Be brave enough to ask for help.
Selling your business is a tough, complex process, so seek external advice. Legal advisors (specialists in M&A) and financial advisors can make the process much easier. The majority of companies choose a ‘house lawyer’ who they trust and who’s helped the company from day one. This seems logical, but it’s problematic. Really, you need a lawyer with specific M&A experience.
Martin Pilotti“The biggest problems occur when there’s no legal M&A specialist on the other side. They often have limited insight into “market practice” and it’s a specific and difficult area of law.”
“I want to get involved as early as possible – definitely before execution of a letter of intent (LOI). LOIs are often short and perceived as non-material...but material terms are easily sneaked in. These can be hard to back away from once the LOI has been executed.”
So, you’ve done all the prep, you’ve found a buyer – now it gets really exciting (but pretty nerve-wracking too).
It’s easy to get impatient at this stage. But it’s important to set expectations around timelines: this could take anywhere from a month (if you’re incredibly well-prepared), to a year.
In addition to how well prepared you are, whether you opt for an auction process or bilateral negotiations will also affect the timeline.
Bilateral – A seller and a buyer negotiate directly + It’s a smoother and faster process compared to auction. + A bilateral deal should be done within six weeks. + Bilateral dialogue lays the foundation for future plans.
Auction – A seller seeks bids from competing potential buyers + Slower and can be more complicated. + Typically takes six months (and requires a lot of energy and focus from management and thereby puts risk on operational development). + The main advantage is there could be situations where the seller receives better terms.
Janne T. Morstol“One transaction I was involved in took a long time to complete, so we had to balance running the company with completing the process. If you’re not careful, you could end up underperforming – and not getting the results you laid out at the start of the transaction.”
At this stage, where you can practically taste the deal, it can be easy to overlook the cultural element.
Finding a partner who’s the right fit for you is vitally important, so take time to get to know them. Understand their business and personal plans for the future, and what they perceive to be potential risks and opportunities.
As you’ll see below, this is not an overnight process, and long journeys are always best with good travel companions who communicate well.
Erik Bergseth“We were in a buying process with two business owners who’d heard there’s a risk of being fired immediately after a transaction – so they were scared. But we did not learn this until after the bid. Their fear drove a very high price expectation. We’ve since learnt to take things a little slower. To understand more before putting down a bid.”
Take the time and do it right.
The full transaction process is time-consuming, especially for the CEO and CFO.
So you need to plan how you’ll handle your business during the process (and how you’ll incentivise staff to work through such a busy, stressful time).
There’s a big risk at this stage that management becomes absent due to the transaction, and the business loses momentum (which in turn affects the transaction).
To avoid this: set up a small project group in advance. This minimises impact on your business. And limits the risk of leakage.
Gunilla Åberg“It was a very intense period with more work than I could have ever imagined! Having a small team that can deal with the process means you don’t disturb the rest of the business – and you still have the speed and support to progress with the transaction”
When it comes to a business’s flaws, honesty and transparency are hard – but vital.
During the management presentation and due diligence, you’ll need to give potential investors and partners a window into your world. They’ll want (and need) to see everything.
So, be honest, transparent, and humble.
Don’t worry about rewriting truths or hiding weaknesses: they’ll surface anyway. You’ll work with these people over a long period – and lying (or ‘glossing over’) issues at the beginning drains trust.
But hey, we know it’s hard not to put lipstick on a pig (even just a little bit). Showing and sharing your faults – at such a high-pressure, high-stakes stage – is really hard.
Our advice? Take the age-old approach: give ‘em the bad news, then follow it up with plenty of good stuff.
Erik Bergseth“Put it all on the table early so you don’t risk things surfacing later in the transaction. Once you’re in the completion window, those four to six weeks, get tense – small things can become big things. If you share early, you’ve got the time (and reduced stress levels) to work through issues rather than them exploding in your face.”
We’ve finally arrived: the final deal.
The purchase price – and the type of purchase price mechanics – are often the most central part of discussions. And they’re nearly always where problems occur.
Don’t just focus on the number: currency of payment is just important.
Cash is king, but the number could be made out of shares in another entity, lock-ins, and so on.
Other important elements are guarantees and payout terms. One area for particular care is an earn-out: a price that depends on a company’s future results.
Earn-outs are a great way to allow sellers to compromise – if done right.
An earn-out means you hand over the reins of your company to a new owner who’ll ultimately control the business – and lots of things affect future profits – which in turn will affect the earn-out. This means getting the right partner is crucial.
Basing an earn-out on sales or ARR can be easier. But if your earn-out is based on future profitability – make sure you take the time to discuss and agree on appropriate protection.
And that’s it. – now you know the stages that can take you from flying solo to enjoying an investor’s support. But before we go, here are our contributors’ three top takeaways:
+ Get help from advisors, especially legal
(always opt for an M&A specialist).
+ Hire a CFO. + Work out your agenda. + Get your house in order
+ Be honest. + Don’t be afraid – expose your flaws early on.
Then create positive news momentum.
+ Pick buyers you want to work with. + Put together a deal team you can trust.
It’ll hopefully be a long (and intense) journey – get your best travel mates on board.
We’re Monterro, an investment firm (of the get-your-hands-dirty with strategy and operational support variety). We’re different because we are a growth investor. We can also close great deals, quickly (we’re talking – within a month) because we work exclusively with B2B software businesses, and know the process inside out. We’re here to help B2B software firms hit their biggest growth goals.
