For many software founders, the acquisition process feels like venturing into unknown territory. You've spent years—maybe decades—building your company, but selling it? That's likely a once-in-a-lifetime event, and the uncertainty can be daunting.
The good news is that while every acquisition is unique, the process follows a fairly predictable path. Understanding what to expect at each stage can help you navigate the journey with confidence and avoid common pitfalls. Let's walk through the typical acquisition process from initial contact to closing the deal.
Stage 1: Initial Contact and Exploration
How It Starts
The process typically begins in one of two ways: either you proactively reach out to potential buyers, or a buyer approaches you. In the European software market, many acquisitions happen through direct relationships rather than formal auction processes.
The initial conversation is usually informal—a phone call or coffee meeting to discuss your business and explore whether there might be mutual interest. This is your opportunity to get a feel for the buyer and their intentions.
What to Expect
During this stage, expect questions about:
- Your company's history and how it got to where it is today
- Current revenue, growth rate, and profitability
- Your customer base and market position
- Your reasons for considering a sale
- Your timeline and what you're looking for in a buyer
Timeline: 1-2 weeks
Your Action Items: Prepare a high-level overview of your business. Be ready to discuss your financials at a summary level (you don't need to share detailed data yet). Most importantly, assess whether you feel comfortable with the buyer and their approach.
Stage 2: Indicative Offer (Letter of Intent)
Moving Forward
If both parties are interested in proceeding, the buyer will typically provide an indicative offer or Letter of Intent (LOI). This is a non-binding document that outlines the proposed terms of the acquisition.
What's Included
A typical LOI includes:
- Valuation range: The proposed purchase price or valuation methodology
- Deal structure: Cash vs. earnout, payment terms, any seller financing
- Key conditions: Subject to due diligence, financing, etc.
- Exclusivity period: Often 60-120 days during which you agree not to negotiate with other buyers
- Timeline: Expected closing date
"The LOI sets the framework for the deal, but it's not final. Think of it as a mutual commitment to explore the transaction seriously."
Timeline: 1-3 weeks to receive and negotiate the LOI
Your Action Items: Review the LOI carefully, ideally with legal and financial advisors. Don't be afraid to negotiate terms. The exclusivity period is particularly important—make sure you're comfortable committing to one buyer before signing.
Stage 3: Due Diligence
The Deep Dive
Once you've signed an LOI, the buyer will conduct comprehensive due diligence. This is where they verify everything you've told them and look for any potential issues or risks.
What They'll Examine
Due diligence typically covers:
- Financial: Detailed review of financial statements, revenue recognition, customer contracts, and cash flow
- Legal: Corporate structure, contracts, intellectual property, litigation history, regulatory compliance
- Technical: Code review, architecture assessment, technical debt, security practices, infrastructure
- Commercial: Customer interviews, market analysis, competitive positioning
- Operational: Team structure, key person dependencies, processes and systems
Preparing for Due Diligence
The better organized you are, the smoother this process will be. Create a virtual data room with:
- Financial statements for the past 3-5 years
- Customer contracts and revenue schedules
- Employee agreements and organizational charts
- Intellectual property documentation
- Technical documentation and architecture diagrams
- Any material contracts (vendors, partners, etc.)
Timeline: 8-16 weeks, depending on company complexity
Your Action Items: Be responsive to information requests. Delays in providing information can raise red flags. Expect to spend significant time answering questions and providing clarifications. This is normal—thorough due diligence is actually a good sign that the buyer is serious.
Stage 4: Final Negotiations and Purchase Agreement
Finalizing Terms
As due diligence progresses, you'll work with the buyer to finalize the purchase agreement. This is the legally binding contract that governs the transaction.
Key Terms to Negotiate
- Final purchase price: May be adjusted based on due diligence findings
- Representations and warranties: What you're guaranteeing about the business
- Indemnification: Your liability if representations prove untrue
- Escrow or holdback: Portion of purchase price held back to cover potential claims
- Transition period: Your role post-closing and for how long
- Non-compete and non-solicitation: Restrictions on your future activities
Timeline: 4-8 weeks of negotiation and documentation
Your Action Items: Work closely with your legal advisor. Every term matters, and small details can have significant financial implications. Don't rush this stage—it's worth taking the time to get it right.
Stage 5: Closing and Transition
The Final Steps
Once the purchase agreement is signed, you'll work toward closing. This involves:
- Satisfying any closing conditions (regulatory approvals, third-party consents, etc.)
- Final financial adjustments (working capital, cash, debt)
- Transfer of ownership and assets
- Payment of purchase price
The Transition Period
Most acquisitions include a transition period where you help the new owner take over operations. This might involve:
- Introducing the new owner to key customers and partners
- Training on critical systems and processes
- Providing ongoing consultation on strategic decisions
- Ensuring smooth handover to the existing team
The length and intensity of this transition period varies—it might be a few weeks of full-time involvement or several months of part-time consultation.
Timeline: 2-4 weeks for closing; transition period varies (typically 3-6 months)
Common Challenges and How to Handle Them
Deal Fatigue
The acquisition process is time-consuming and emotionally draining. It's common to experience "deal fatigue" as the process drags on. Combat this by:
- Setting realistic expectations about timeline
- Delegating data room management to a trusted team member
- Maintaining focus on running your business—don't let operations suffer
Price Renegotiation
Sometimes buyers attempt to renegotiate price after due diligence, citing issues they've discovered. This is frustrating but not uncommon. Protect yourself by:
- Being transparent from the start—don't hide issues that will come out in due diligence
- Understanding which issues legitimately warrant price adjustments vs. buyer's remorse
- Having a walk-away number in mind
Cultural Misalignment
Sometimes during the process, you realize the buyer isn't the right fit for your company. It's better to walk away than to complete a deal you'll regret. Trust your instincts.
Additional Thoughts
Making the Process Work for You
While the acquisition process can feel overwhelming, remember that you're not powerless. You have the right to:
- Ask questions and seek clarity on anything you don't understand
- Negotiate terms that protect your interests
- Walk away if the deal isn't right
- Set boundaries around your time and involvement
The best acquisitions are those where both parties feel they're getting a fair deal and are excited about the future. If you're working with the right buyer, they'll respect your concerns and work collaboratively to address them.
Behind the Scene
During the Due Diligence and the Final Negotiations, the buyer has many tasks to do, including:
- Actively analysing your company documents
- Negotiating terms and conditions with banks and financial investors
- Gathering knowledge about the industry
- Potentially manage in parallel other active deals
Most professional buyers try to be very responsive. But there is no need to panic if the buyer takes a bit of time to answer messages. Due Diligence is a complex process with a lot of data to analyze, and buyers would usually not waste time doing it if they were not seriously interested about your company.
What's Set us Apart
While this describes the typical acquisition process, at Legacies Management, we are flexible and we like to adapt to our partner needs. Getting in touch earlier, even years before the potential succession enable us to develop a relationship without the constraints of an exclusity period. This usually brings several significant benefits:
- It create a relationship of trust between you and us
- It enables you to assess our relational and technical skillset
- It later speed up the Due Diligence process
Conversely, we are aware that you have a business to run in parallel to the acquisition process. We gladly accomodate the timeline base on your needs.
Last but not least, we believe it beneficial for all stakeholders to have a proper transition. Hence, our transition period is usually longer, typically 6-24 months.
At Legacies Management, we strive to make the acquisition process as transparent and straightforward as possible. We understand that selling your company is a major life decision, and we're committed to treating you and your business with the respect you deserve. If you're considering your options and want to understand what the process might look like, we're always happy to have a conversation.
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