What PE Look for & How to Value Your Company
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M&A activity in the tech industry continues to accelerate and grow. Private equity (PE) firms are armed with ample capital and sizable returns, setting records for tech deals. As such, tech leaders in a wide variety of sectors such as SaaS, artificial intelligence, and media platforms continue to be approached by money-hungry PE firms for potential partnerships or opportunities. Therefore, it is now more important than ever for tech leaders to understand the PE space, know what to look out for, and understand how to value your own company. As mentioned in our first article of this four-part series, there are various benefits and other key components of PE firm leaders should understand. These steps will provide you and your company with the necessary knowledge and resources to find the right partners.

Know the PE Ecosystem

The PE landscape has changed a lot over the last 10 to 15 years. A situation that meant some technology companies, especially early-stage enterprises, were not necessarily of interest to PE firms.

Today, most technology companies, including those in the software space, which are post-series A funding round will be of interest to some PE firms — and in some cases companies even earlier in their lifespan can find interested PE investors. As such, tech leaders should educate themselves regarding the PE marketplace and the various benefits PE firms can offer.

Private Equity Ecosystem

What do PE Firms Focus on?

Some PE firms are generalists, whereas others have a specific regional focus. Some are sector specialists; others focus on turnaround or transformational acquisitions. Each PE is different and has different focus points and strengths. Other factors, such as risk-willingness and how closely involved they wish to be in the running of their portfolio companies also vary substantially. Some PE firms prefer a hands-off approach, while others will want to be very hands-on. Both approaches have merit, and it is important for the leadership team of your company to look objectively at what kind of PE partner your company needs.

Many PE firms focus on market position and the competitive advantages of targets as these items have the potential for sustainable growth. Companies that have multiple growth paths with stable and recurring cash flows are also of importance to PE firms.

Finally, PE firms analyze industry trends and the management team to determine overall attractiveness. Tech leaders aiming to partner with PE firms should conduct an internal analysis of the points identified above to understand where your company’s strengths and weaknesses are.

How Many PE Firms Should I Seek Out?

When considering PE investment, it is advisable to find at least three or four interested parties. This promotes healthy competition between the PE firms and thereby increases the chances of securing the deal you are hoping to achieve.

Closely Consider a PE Firm’s Focus

Company leadership should pay extra attention to identifying why you want to work with a specific PE firm. For example, if you are a software company, you may prefer to work with a PE firm focused on your industry. In some cases, it can be advantageous to collaborate with industry experts, but if, for example, your core ambition is to grow international sales and optimize internal business processes, industry expertise becomes a somewhat less important quality to prioritize.

Insight into and understanding of the focus of specific PE firms helps you identify which PE email inquiries to reply to or which PE firms you should contact. It may take much time to sift through the many options and identify potential buyers, as well as define your core needs, which makes working with consultancies a good option. Thanks to extensive networks and contacts, consultancies can help you identify the optimal PE firms to engage with, and often much quicker than you would necessarily be able to do on your own.

Know Your Worth Before Negotiating with PE Firms

Before sitting down at the negotiation table opposite the PE firms you wish to discuss a deal with, you need to evaluate your company’s worth. Such a valuation forms part of the foundation for establishing realistic negotiation targets.

What Should a Valuation Comprise of?

A valuation should include appraising your material and immaterial assets, your current situation and future potential. It should also include an analysis of deal values and deal structures in your industry. Generally, revenue or EBITDA multiples are used as a yardstick for the former.

The multiple is currently high in the technology sphere. For example, average EBITDA multiples for software-as-a-service (SaaS) deals in the first half of 2018 was north of 10x. While high valuations may cause some investors to pause, unsure if they will be able to make a profit, the current amount of available capital is working as a counterbalance, incentivizing investors to seek new deals. Anyone looking to enter the tech or PE space needs a valuation company that understands Tech companies, ARR, recurring revenue, cost of customer acquisition.

What Affects My Company’s Value?

Many factors can affect your valuation, both positively and negatively. Below is an inexhaustive list of areas that affect your company’s value:

  • Technology:  Including your products, services, technology, intellectual property and R&D.
  • Management:  A proven track record of overcoming challenges will likely increase your valuation.
  • Industry trends:  Macro and micro trends that directly and indirectly affect your industry will be something that PE firms are acutely aware of during negotiations.
  • Revenue:  Your current revenue, historical growth and projected future revenue. Important factors include whether your revenue is recurring and if it comes from a broad customer base or few, large customers.
  • Turning revenue to cash flow:  Your ability to turn revenue into positive cash flow. This is a key metric for PE firms, as it indicates that you are able to grow your liquid assets.
  • Growth potential:  Your future potential for growing revenue and profitability; includes potential untapped markets or customer bases, as well as the diversity of your growth strategy.
  • Sales:  Includes customer stickiness, your historical sales growth and the organization and performance of your sales team.
  • Potential future buyers:  Determine who might be interested in acquiring you in the future, or your potential to IPO within a set timeframe.

The valuation of each part is not based solely on a picture of current and past performance but will include an analysis of what your material and immaterial assets (especially IP) will be worth over time.


In many cases, it is beneficial to carry out your own due diligence process ahead of negotiations. The process will help you form a clear idea of what your company is worth, as well as what opportunities and challenges an interested PE firm likely sees for the future of your company — as they will likely focus on these areas during deal negotiations. More about negotiating with PE firms in Part 3.

Today’s Thought Leaders

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Peter Ryan, Partner & Co-founder

About Peter Ryan

Partner, Co-founder, & CPA

Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.

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Rosie Cheng, Finance Consultant

About Rosie Cheng

Finance Consultant

Rosie Cheng is a Finance Consultant at Ryan & Wetmore. She focuses on government contracting services and produces many of the firm’s government contracting newsletters. Rosie graduated from Georgetown University with a Master of Science in Management and from William and Mary with a Bachelor of Business Administration.

About Tessa Lucero-Bennett

Senior Manager

Tessa is a Senior Manager at Ryan and Wetmore. Tessa has over 20 years of experience serving and advising businesses in all phases of the organizational life cycle.  Her experiences range from traditional accounting and tax services to complex consulting services, including business planning, financial budgets and projections, benchmarking and financial trends, M&A support and analytics,  internal controls assessment, development of best business practices, and financial training for top management levels.

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