Inside the Mind of an Acquirer with ASG’s CEO, Steve Reardon | Built to Sell Radio

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In 2009, Steve Reardon sold Peldon Technologies, a company he founded that provided pharmacies and retailers with photo printers and multifunctional kiosks. Following his departure, Reardon developed a passion for running businesses, a path that ultimately led him to venture into acquisitions.

Now, Reardon serves as the CEO of Alpine Software Group (ASG), a branch of Alpine Investors. ASG’s main objective is to acquire companies that specialize in vertical Software as a Service (SaaS) solutions. In the latest installment of Built to Sell’s Inside the Mind of an Acquirer series, you’ll learn how to:

• Think like an investor rather than an operator when planning to sell your business.
• Understand key traits that Reardon prioritizes in companies he acquires.
• Apply Reardon’s formula to estimate the growth potential of your business.
• Get 100% cash up front for your company.
• Identify the most reliable indicator of an exceptional leader.
• Avoid Reardon’s top deal killers when selling your business.
• Uncover potential buyers who might be plotting to snag your business for a discount.

Check out our full M&A Glossary

Show Notes & Links

The Rule of 40

The Rule of 40 is a guiding principle that suggests the sum of a software company’s revenue growth rate and profit margin should meet or exceed 40%. For example, a company with a growth rate of 35% and a profit margin of 5% would achieve the rule of 40. Similarly, a company with a growth rate of 15% and a profit margin of 25% would meet the rule of 40.

The evaluation of a company’s position with respect to this rule necessitates knowledge of:

1. Revenue growth rate
2. Profit margin

The applicability of the Rule of 40 is not universal and is primarily tailored to SaaS companies.

 

Alpine Software Group (ASG)

Alpine Investors

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Definitions

Churn: Churn is a measurement of the percentage of accounts that cancel or choose not to renew their subscriptions. A high churn rate can negatively impact Monthly Recurring Revenue (MRR) and can also indicate dissatisfaction with a product or service.

Churn is the measure of how many customers stop using a product. This can be measured based on actual usage or failure to renew (when the product is sold using a subscription model). Often evaluated for a specific period of time, there can be a monthly, quarterly, or annual churn rate.

Source: https://bit.ly/3nw3DPi

Re-Trading: Re-trading is the practice of renegotiating the deal price of a company after the initial price and terms have been agreed to. This occurs when the buyer performs due diligence during negotiations and potential risks are uncovered during the process.

LTV:CAC Definition: The Customer Lifetime Value to Customer Acquisition Cost (LTV:CAC) ratio measures the relationship between the lifetime value of a customer and the cost of acquiring that customer. The LTV:CAC ratio is calculated by dividing your LTV by CAC.

Source: http://bit.ly/3tiegbB

Put Option: A put option gives you the right, but not the obligation, to sell a stock at a specific price (known as the strike price) by a specific time – at the option’s expiration. For this right, the put buyer pays the seller a sum of money called a premium. Unlike stocks, which can exist indefinitely, an option ends at expiration and then is settled, with some value remaining or with the option expiring completely worthless.

Source: http://bit.ly/3ItK5Fh

Letter of Intent (LOI): A letter of intent (LOI) is a document declaring the preliminary commitment of one party to do business with another. The letter outlines the chief terms of a prospective deal. Commonly used in major business transactions, LOIs are similar in content to term sheets. One major difference between the two, though, is that LOIs are presented in letter formats, while term sheets are listicle in nature.

Source: https://bit.ly/3ppDnr3

Earn-out: Earnout or earn-out refers to a pricing structure in mergers and acquisitions where the sellers must “earn” part of the purchase price based on the performance of the business following the acquisition.

Source: https://en.wikipedia.org/wiki/Earnout

Due-Diligence: Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.

Source: https://bit.ly/3yYDfo5

Confidential Information Memorandum (CIM): A confidential information memorandum is a document prepared by a company in an effort to solicit indications of interest from potential buyers. The CIM is prepared early on in the sell-side process in conjunction with the seller’s investment banker to provide potential buyers with an overview of the company for pursuing an acquisition. The CIM is designed to put the selling company in the best possible light and provide buyers with a framework for performing preliminary due diligence.

Source: https://bit.ly/3Jukdt2

Preferred Preference: Preferred Preference means that amount equal to the sum of the Preferred Preference Per Share for all shares of Company Preferred Stock (including any rights convertible into, or exercisable or exchangeable for, shares of Company Preferred Stock on an as-converted, exercised, or exchanged basis) issued and outstanding immediately prior to the Effective Time, rounded to the nearest one hundredth (0.01) (with amounts 0.005 and above rounded up).

Source: https://bit.ly/3RSTtGH

About Our Guest

Steve Reardon

Steve is a dynamic and expansion-oriented Chief Executive Officer with an extensive background in diverse sectors such as technology startups, mid-tier sports retail enterprises, and multinational banking conglomerates. His entrepreneurial journey has seen him at the helm of several Software as a Service (SaaS) corporations, namely Bill4Time, Grade.us, and ASG Martech/Traject. Currently, Steve holds the position of CEO at Alpine Software Group, a distinctive software company with a specialty in acquiring, developing, and managing industry-leading vertical SaaS firms.

 

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