SmartProcure Closes Deal Over 50% Higher than Expected with Multiple Offers

The Challenge



SmartProcure, a leading provider of procurement intelligence software, wanted to raise capital in order to make a strategic investment in its company. They partnered with a well-respected firm to accomplish this goal, but the partner didn’t specialize in technology, and after several months in the market without a viable investor, SmartProcure felt frustrated and decided to end the agreement.

At this point, the company shifted direction and determined that selling the company to someone who would be interested in investing in the future would accomplish the goals of (1) immediate liquidity for the shareholders, (2) investing in the future of the business and (3) an opportunity for future investment.

“We partnered with our cross-border M&A team at CDI Global to assist SmartProcure with improving their valuation and attracting the right buyers,” says Todd Ostrander, Managing Director at Merit Investment Bank. “As chair of technology for Merit Investment Bank and CDI Global, we knew that we could leverage my background in technology and procurement, which would benefit the client.”

The Solution



Merit Investment Bank and CDI Global worked with SmartProcure to understand its business goals and create a strategy focused on increasing valuation and attracting potential buyers.

“The process that we executed is a little different from our normal process,” says Ostrander. “Normally, we’d reach out to 300 to 400 firms across the private equity, family office, and strategic investor market. But in this case, we had a pretty good idea of the subset of buyers that would be most interested, so we took a highly targeted approach.”

The team’s strategy focused on reaching out to 30 of the most probable buyers, knowing that it could reach out to a broader market if it didn’t get the expected transaction. The approach quickly paid off, with SmartProcure gaining significant interest from several buyers.

CDI Global, jointly with Merit Investment Bank, put a timeline in place, requesting indications of interest in pricing and terms from prospective buyers within a month. After receiving an exclusive Letter Of Intent (LOI), the due diligence process quickly began, which is where a partnership with Merit Investment Bank paid off.

“When you’re selling a software company with subscription revenue, special challenges exist, including the need to validate the recurring revenue,” says Ostrander. “A potential buyer came to us, wanting proof of the recurring revenue, and the whole deal hinged on proving the accuracy of this data.”

Merit Investment Bank located a firm specializing in data analytics, and SmartProcure provided it with relevant sales data. The analytics company was instructed on what to look for in the data to ensure that recurring revenue was provable and also that the company’s churn wasn’t really churn.

Without addressing this issue, the company risked losing the confidence in the data of the buyer which could have lowered the sales price or caused the buyer to pull out altogether. “Validating critical data was a large factor in getting the deal done and securing a higher-than-expected purchase price,” says Ostrander.

The Results



The targeted strategy paid off and the firm received multiple offers, all of which met or exceeded the seller’s expectations which were all over 50% above the previous firm’s valuation range.

“We had a buyer that preempted everybody and said, ‘We’re not going to submit an IOI, we’re going straight to an LOI,’” says Ostrander. “They wanted the deal badly and submitted a bid that made it easy for the seller to accept without going back to the other prospective buyers.”

The transaction structure was perfect for the sellers because they were able to (1) create the liquidity for the shareholders, (2) get funds to invest in the strategic projects and (3) carry 20% of the future value into the new company.
“Our ability to understand the company operationally, due to expertise in the technology and procurement space, is what allowed us to position them in the most advantageous way to create a higher valuation and multiple potential buyers,” says Ostrander.