At RSPA Inspire 2018, a business thought leadership conference I recently attended, Jeff Riley, VP of mergers and acquisitions, for The Corum Group, gave a presentation on the mergers and acquisitions (M&A) tech landscape. What struck me most about his presentation was how many ISVs are naturally aligned with many of the hottest (i.e. valuable) trends in the M&A space.
As Riley said to the audience, if you can map your business to these trends, you’re going the right way toward adding value to your business.
Outperform the Multiples
Are you hoping to build your software, make it attractive to buyers, and then cash out? According to Jeff Riley, VP of mergers and acquisitions, for The Corum Group, here’s your checklist for increasing the valuation in your ISV business.
High profitability – think smart about how you operate your business. High efficiency and using automation is key to generate high profitability.
Growth higher than market average — Make sure you have the resources, plan, and strategy that allows for higher than industry average growth. Companies are acquired not just for their present state, but future.
Working in an emerging region — If you’re in an emerging region, your business could be more valuable than a similar business in a developed one.
Working in a growing market — If your software is in a growing market, there’s a strong likelihood it will be more valuable than one in a declining market.
Scalability of service business hurts multiples — If your business is hard to scale, it’s worthless. Use processes and automation to do things more efficiently and drive profitability.
There are many calculations and methods to value a company, but remember, at the end of the day your business is worth only as much as someone is willing to pay.
#1 AI Enablement
Riley says the AI and machine learning space is white hot. AI systems need tons of data to feed the algorithms for the learning processes. They also need built-in feedback loops to come up with more efficient algorithms faster. North Face and 1-800-Flowers are using AI as a recommendation engine for their e-commerce sites. Paypal and other payment companies are using AI to reduce payment fraud.
#2 Composite Commerce
Currently, brick and mortar and online retailers are leveraging the best attributes from the other to create better shopping experiences for the customer. This trend is reaching into areas previously untouched. For example, Amazon’s recent acquisition of Whole Foods put the world on notice that food supply chain is a new target for Amazon. Healthcare is rumored to be next.
#3 IoT Software
The number of connected devices out there will reach into the tens of billions. Form factors are changing and companies are becoming more creative with their solutions. At the same time, sensor and hardware costs are dropping rapidly. Retail is using sensors to track shelf stock. Restaurants are using beacons and proximity devices to engage customers. Sensors are being used to monitor food safety in the supply chain. If you’re an IoT integrator or incorporating AI into your software, you’re aligned with a great trend.
#4 Digital Currency Flow
The key word here is blockchain, a foundational space whose potential hasn’t yet been fully realized. If you’re doing work with blockchain, you’re in an exciting and lucrative space.
#5 Data Science Monetization
The video game space learned early on how to understand customer retention and usage patterns by monetizing certain aspects of the games. By having access to this data, they can make intelligent business decisions. Consider how valuable data can be to other businesses. In restaurants, it’s critical to know how much and when to staff as well as how to optimize a menu. How can you deliver valuable business data to your customers in the markets in which you serve?
#6 Focused IT Services
What services can you offer that customers will really value? Buyers value deep domain knowledge as a driver of defensible long-term customer relationships. Companies on the forefront of key trends and high-value verticals tend to be more interesting to buyers.
#7 Smart Logistics
A strong and efficient distribution and supply chain is key for many companies to operate efficiently. You’d think that supply chain technology, which has been around for ages, would be long in the tooth by now. However, IoT, wireless devices, fleet management software, and AI are reinvigorating the industry. Can you play a role?
#8 Connected Health
Huge opportunity. Technical, regulatory, and demographic changes are driving a shift from system-centric to patient-centric health IT. Patients are demanding consumer-grade connections to data and providers, forcing providers to obtain the tools that help them compete. There’s a notable demand for telemedicine, patient engagement, mobility, and transparency solutions.
#9 Regtech Systems
The complexity of dealing with regulatory change is increasing. Solutions that are in some way backed by legal requirements draw significant acquirer interest.
#10 Data Security
New technologies create new risks from freer flowing data. High impact breaches and attacks (Equifax, Uber, WannaCry) are driving broad recognition of security needs. IoT has opened a new front, from IoT botnets to hijacked smart speakers.
As you look at the above hot trends, ask how your software is currently aligned. As you strategize on where to spend your energy going forward, it might behoove you to consider these trends. Not only will you most likely be adding value to your business, you’ll be strengthening your position among the competition.