Blog 

March 2023

Evaluating software companies can be a complex and time-consuming task. We at CBCS believe it's important to have a systematic approach to evaluating potential software acquisitions.

Having an independent, experienced organisation analyse the key metrics is critical in seeing both where growth opportunities exist and whether the organisational structure, and supporting processes and methodologies can facilitate that growth. There is clearly an important role for sophisticated financial models in this process, but how the company works, how it positions itself and the quality of its operation and  plans are just as critical as the numbers.

Some key headline areas to focus on are:

• Product capabilities: what’s unique, differentiating and proven? Is there a deep competitive moat? Is the product roadmap credible? How large is the tech debt?

• Technical expertise: how strong is the product development team? Do they pay sufficient attention to tech debt? Are their processes scalable? Do they have the ability to implement emerging technologies such as AI?

• Customer success: how closely does the company engage with, and listen to, its customers? How systematically are bugs and feature requests from customers handled? Is customer usage of the product well understood by product management? How are customers involved in forming the product roadmap?

• Pricing: how clear, consistent and logical is pricing? Transparency and simplicity in pricing for clients is critical for growth.

• Company culture: how does the company culture fit with that of the acquirer and how could that impact how the company is integrated in? 

These are some of the factors which lead to a better understanding of the strengths and weaknesses of a software company. That understanding can then be used by an investor to make a more informed judgement on investing in a company or in accelerating the growth of a company they already own.