At TSG, we are fortunate to work with many different types of companies that are part of or are interested in the payments ecosystem. Those that contact TSG when they’re considering an exit, i.e., selling their company to a financial or strategic buyer, include payment service providers of all varieties, fintech companies, and software companies.
There are some common themes amongst the companies who contact TSG about a sale. First, they want to know how much someone would be willing to pay (What’s My Multiple?), and then they’ll ask about how quickly TSG can create a pitch deck or a Confidential Information Memorandum (known as a CIM). These are both good and reasonable questions/requests. When we’re approached with these, our recommendation for the next step is clear – you should start with an assessment and valuation.
Benefits of an Assessment and Valuation
When a company seeks sell-side representation, they’re essentially looking for an endorsement from a third party to potential buyers. Prior experience in this arena at TSG has proven that we must have an intricate understanding of any business we’re representing if we’re going to be successful. The first benefit of an assessment is informing your representative to set them up for success. Similarly, it is equally important to identify and highlight your company’s value drivers to ensure that you understand the value of your company in the marketplace prior to starting the sales process.
Another beneficial aspect of an assessment is that it serves as a readiness tool. When conducting an assessment, TSG experts will examine the technical, financial, and strategic aspects of your business (more on this later). This exercise may reveal that while you may have built a nice mousetrap or that your business is on a positive trajectory, it may not be ready to go to market.
Timing is critical in mergers and acquisitions, and you certainly do not want to be too early. Imagine this scenario: you’ve presented your company for sale before you could demonstrate a path to profitability, and as a result, there was no interest from the investment community. Now it’s two years later and you’re on the right track. Do you think investors will remember that first look two years ago with fond memories or think, “Oh yeah, I remember this company. They weren’t attractive.”? In most cases, it will be the latter, which is why investing the time and dollars in understanding where your company is positioned can be critical to your eventual exit.
Assessment and Valuation Components
Now that we have established some benefits of undergoing an assessment and valuation, let’s review how TSG approaches the process. The TSG team completes a review that includes portfolio benchmarking, an evaluation of technology and product offerings, a review of technology infrastructure and data security, a sales channel review, and an analysis of requirements to reach scale in a growth modeling evaluation.
This broad array of components is critical since the lines between a payments company and a software company have blurred in recent years as more and more software entities understand the value of monetizing payments. For those software companies that have not yet seen the light of Payments Monetization, our team can help you get there.
Overall, TSG wants to stress to those considering an exit to do so strategically. Understanding where you are today, identifying key value drivers, and identifying any weaknesses will improve your standing in the M&A marketplace when you decide to post your “for sale” sign. Contact us today to start the conversation.