The Value of the Software in an Acquisition

Question

I'm currently trying to estimate the value of software in case of an acquisition of a SaaS company from a technical angle (People, Process, Technology). So far, I could attend several due diligences. As it seems, it's all about MAU, MRR and Conversion Rate and so forth. The technical value of the development team (e.g. seniority), their processes (e.g. automated deployments) and the software (e.g. cloud-native architecture) built so far seemed not to play a big role in determining the value of the SaaS business.So, what's your take on this matter? In the eyes of an M&A consultant, is software just a tool you can easily rebuild and replace and all that counts is the current business stats that it enables? Or is there anything I can do as a founder to raise the valuation of my business by polishing people, process and technology in the R&D team?

davismwfl · Accepted Answer

My experience in a couple of my own exits and having been on due diligence teams for a few organizations. Rarely is your software what the value is based on, it is the business, revenue and people. The software is just the tool which you are using to solve the problem so it will not get much value assigned to it. Patents hold value, and so if your software implements the patent that does help change the picture some, but the value of the company will still be in the business.If you want your business to be valuable it is the combination of the software, people, process, clients and revenue that will make it valuable. If you have negative revenue then you will only have the value of the team, processes & clients, the software (without patents) will be worth nearly 0 and even with patents will only be slightly more valuable. Usually new founders struggle with this fact thinking the software is super valuable, when in reality it is no different then having a CNC machine. The CNC machine doesn't hold the value, the parts coming out of it, clients and processes hold the value.