How to Know When It’s the Right Time to Sell Your Software Company


The software industry is dynamic and fast-paced, and it goes without saying that many owners and operators with growing and well-performing companies are interested in leveraging their position to achieve some liquidity. Deciding when to sell is a major decision. After devoting your hard work and time to developing your business, you deserve to reap the maximum benefits.

Selling your software company can be lucrative at any point, but certain variables make it a more opportune time and ensure you’re maximizing the outcome. You must consider the scale and trends your business is experiencing along with the various tailwinds impacting your market. Buyer and investor behavior in the markets affect optimal timing, along with broader macroeconomic variables such as inflation, employment rate, and consumer spending.

To meet your personal and business goals when selling your business, you must understand the role these elements play and be able to evaluate where your business currently stands within the broader context of M&A markets. Doing this enables you to determine how timing impacts your decisions to pursue a liquidity event and ensures you make the decision to sell at the right time for you and your software company.

Establish Personal & Business Exit Goals

Before knowing whether it’s the optimal time externally to sell your software company, you first need to identify your personal and business goals for the transaction. Recognizing the objectives you want to meet helps you determine the best time to sell your business.

As the founder or operator of your company, do you want to stay involved and run daily operations or move to a higher-level board position? If you plan on departing the business, do you have a succession plan in place?

It is also imperative to consider the business goals. Do the shareholders want to restructure the cap table? Do they want to get more funding to help fuel the company’s growth? Consider how your management team is positioned and know if they want continued involvement with the business.

These factors help determine what type of transaction is best and the type of buyer that would be a good fit. You may find that you’re open to assessing a multitude of options after defining your personal and business goals.

Ultimately, developing an exit strategy well in advance allows you to define and prioritize what a successful sale means to you and your company. Having a clear succession plan in your exit strategy makes the transition period easier for founders as well as other company executives and employees, no matter the outcome. You can ensure you’re meeting any personal goals in addition to the objectives your company hopes to achieve through a sale.


Evaluate Market Timing

Market dynamics for software companies are variable and driven by both overall market conditions and industry-specific trends in the SaaS M&A markets. You must understand market conditions that impact your transaction in order to determine if the timing is right to sell. You’ll need perspectives on both public markets and private M&A markets.

The public SaaS markets have declined in 2022, with giants like Zoom experiencing plummeting sales and being forced to reevaluate their forecasted annual revenue. However, the drop in SaaS M&A valuations is less than what the public market is experiencing. The median SaaS M&A EV/Revenue multiple decreased by 35% year-over-year (YOY) in 3Q22, compared to a drop of 61% YOY of publicly traded SaaS companies during Q3. This data demonstrates the strength of the SaaS M&A market, with continued demand for efficient and stable software businesses during periods of uncertainty.

Even amongst the unpredictability and volatility faced at the macroeconomic level in 2022, SaaS M&A deal volume remains strong and active. According to our research, Q3 saw 492 SaaS M&A transactions, which virtually mirror 3Q21’s 498 transactions, a period considered to be a great market with little concern about the economy or inflation. Further, investors continue to have an insatiable appetite for high-quality companies exhibiting the right characteristics.

Even in a tough market, SaaS companies are viewed as attractive opportunities. Spending on cloud-based services is expected to grow an additional $40 billion in sales through 2022. Businesses serving recession-resistant end markets and those which are mission critical to customer operations will have the most interest and most robust deals.


Additional Factors Driving Your Decision to Sell

Beyond your goals and market conditions, there are other internal and external elements that determine the optimal timing of your sale. Depending on your software company’s circumstances, it may be smarter to sell now or wait for a more optimal time.

Growth Opportunities

Your business may be at a tipping point regarding its growth. You may have a real opportunity to grow but may lack the capital or the internal capabilities to grow at your desired rate and maximize your potential. There may be additional markets or products your company would like to expand into, but you don’t currently have the means to take action. These circumstances give you the opportunity to go through a majority recapitalization to add fuel for expansion while also providing liquidity and the opportunity to de-risk.


Market consolidation, especially of your competitors, is a good indication it’s the right time to assess a sale. Consolidation within your market attracts attention from strategic acquirers and investors alike and is often a sign to start preparing for a deal so you don’t risk falling behind better-capitalized competitors.

Rapidly Changing Market

External factors such as regulatory changes or newly passed legislation can bring about rapid changes within your market that create demand for your offerings. The rapid acceleration of the market, also known as a hot market, creates more opportunities for liquidity events.

For example, the recent rise in remote work and schooling opportunities and federal legislation to expand broadband infrastructure increased the need for cloud-based work solutions and e-learning platforms while raising the demand for SaaS offerings now and in the future. This furthers your appeal to buyers and investors, helping you maximize your transaction’s outcome.

You’ve Reached Scale

Growing your software company takes dedication and time. Reaching scale, which SEG defines as an annual recurring revenue (ARR) of $5-10 million for software companies, piques the interest of many investors and buyers. Selling your business at this point gives you an advantage over other companies that are still in their initial growing period. Your company reaching scale often proves you’ve found a product market fit and acquired a dependable customer base. It’s also a great moment to position for a liquidity event.

Get M&A Guidance from Software Experts

Take the guesswork out of timing your sale by working with M&A advisors who know the SaaS industry. The knowledgeable advisors at Software Equity Group (SEG) understand how intimidating and time-consuming selling your software company can be. Engaging with an M&A advisor early on will help you identify the optimal market timing in order to meet your objectives and maximize your outcome.

Our team closely watches market trends and works with clients to establish their personal and business goals for selling. We’ll help you determine the ideal timing and positioning for your liquidity event and handle every aspect of your transaction so you can focus on running your company. Check out our research or see our recent survey from investors on recent market trends to learn more.

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