Software Due Diligence and Value Creation in the first 100 days
2022 will be remembered as the year we clearly experienced global macroeconomic changes, and a shift from a heated investment landscape to a more cautious era in mergers, acquisitions, and investments. Executives and investors are still looking to obtain the same rate of return as in recent years, but with smaller and more strategic deals. As a result, the level of diligence required in transactions has increased and investors have become more selective and aware.
“When the tide rises, all boats rise with it.
The tide is ebbing. Now it is time to take care of the boats.”
This was the theme approached at Avalia Systems’ launch event at the Home Grown Private Club in London. Our Head of Business UK of Avalia Systems, Camilla Carrapatoso, mediated the panel composed by our CEO and co-founder, Rodney Reis, who was joined by Pedro Saffi, Professor of Financial Economics and Director of the Master in Finance program at Cambridge Judge Business School and Pedro Saffi (PhD in Finance, London Business School).
Here are some of the key points of this discussion:
While we were sailing in a context of “high tide”, with an abundance of capital and low interest rates on a global scale, many companies and funds favored speed over due diligence. Once a promising sector such as Fintechs or Health Techs has been chosen, timing to enter these markets was more important to surf its wave of growth.
Changes in the macroeconomic scenario were responsible for a major decrease in the volume of investments. This movement is illustrated in Chartfleau’s daily stock prices bubble charts of 2020 and 2021 where it is possible to see the stocks of technology companies reaching record highs and then being affected by the latest happenings - such as the war, higher oil prices, and inflation.
The tide has changed and now "cash is king". Hence closing or not a deal tends to rely more on the company's potential than on the sector it belongs to. For technology companies, this potential translates not only into the quality of sales execution and revenue generation but also in the development and operation of information systems.
When “impact of technology in business” is mentioned, one refers to the speed of innovation, the quality of products and services provided, and the productivity of technology teams - all of which have a direct impact on financial results - and even valuations. These metrics, however, are rarely seen on investment thesis and on the radar of executives making capital allocation decisions.
If you want to believe in what was verified, not what you were told, count on Avalia Systems. We provide bespoke Software Due Diligence and Tech Advisory services for your next M&A or investment in a technology enterprise.