Ask Me Anything: VP of M&A, Marcus Maclean

In part two of our Ask Me Anything Series, Marcus Maclean, VP of M&A at Perseus, sits down with us to answers sellers' key questions on the M&A process. He discusses how to prepare for a successful sale and how to handle the due diligence process. These quick insights are important for anyone starting to think about selling their business.

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Q: What are the key financial metrics buyers focus on during due diligence, and how can sellers best prepare?

MM: When assessing a potential acquisition, buyers will typically undertake a detailed evaluation of a company’s financial performance.

Some areas we assess are:

• Revenue Mix: What percentage of revenue is recurring, compared to one-time revenue? One-time revenue includes things like license sales or professional services.
• Revenue Growth: How much of the business’ revenue comes from adding new customers, versus increasing share of wallet with existing customers?
• Attrition/Churn: How many customers have left or downgraded their spend?
• Profitability: What is the business’ gross margin and overall profitability?
• Net working capital profile: the fluctuations in the cashflow needed to fund the operations of the business

To prepare for this in-depth assessment, sellers should review their historical financials and be able to explain the reasons behind any material year-over-year changes.

Sellers who can anticipate questions during due diligence are often able to streamline the process and reduce potential delays.

Q: How can sellers position their company to maximize valuation in the eyes of buyers?

MM: Different buyers may put more weight on certain characteristics of a business.  

However, there are a handful of common elements that sellers assess. To strengthen valuation, sellers should focus on clearly articulating their company’s:

• Business Performance: Present historical financial results in a transparent manner. Always include supporting financial and operational data.
• Market Position: Highlight your competitive advantages and provide data relating to your share of market.
• Growth Strategy: Provide a future roadmap for your product, offer sales forecasts, highlight other important growth opportunities. This will help the buyer understand the company’s long-term potential.
• Leadership Depth: Showcase a strong leadership team and succession plan.

Q: How should sellers approach forecasting and financial projections when preparing for an M&A transaction?

MM: Forecasting is both an art and a science. Sellers should be realistic. Projections should be based on data and historical trends. They should also be backed by sales pipelines and clear growth initiatives.

Buyers often discount overly ambitious projections. Therefore, sellers should provide forecasts they believe in. These forecasts should also hold up under scrutiny.

Q: From an buyer’s perspective, what are the most common red flags that might derail a deal during financial due diligence?

MM: Red flags often stem from undisclosed or unknown issues that arise during diligence.

Preparedness and transparency from both parties is key. There can be a lot of documentation required of the seller, but if they are able to provide the potential buyer with comprehensive historical financials, customer and vendor contracts, and operational data upfront, it makes due diligence go a lot smoother.

Q: How can sellers prepare for the scrutiny that comes with due diligence?

MM: Due diligence can be an intense process, especially for those unfamiliar with it. As experts in software M&A, we focus on making the process as easy on the seller as possible. Empathy and support are at the core of our approach—we understand that M&A isn’t your primary 9-to-5, and we’re here to guide you through it.

In Conclusion

MM: Selling a business is a complex journey, and no two sales processes are alike. Our team succeeds by making due diligence easier. We provide in-person support and stay honest and clear with sellers.

If you are thinking about selling or exploring your exit options, it's never too early to talk. Connect with us today.

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