“When valuing software it is important to look at the typology of software,” Rob Schlegel (Houlihan Valuation Advisors) told listeners during last month’s BVR’s Webinar “Software Company Valuation.” Mike Pellegrino (Pellegrino & Associates) concurred: “There are different types of software, not all software is the same, and the value of each varies dramatically.”
Schlegel noted two M&A advisory firms that have broken down the software industry into subsectors:
- Corum Software breaks down the entire software industry into six markets and 27 subsectors.
- Investment bank and M&A advisory Software Equity Group provides a different breakdown of the industry into 2 markets and 22 subsectors. The firm also provides free quarterly and annual reports on the acquisition strategies of over two hundred North American software firms in addition to deal data and analyses.
Knowing the exact type of software you are valuing has “a lot of significance because we could look at mainframe software and find remarkable variation in the value of projects just depending on particular industries. So if you're an insurance carrier, your mainframe software might bring a different value proposition and cost than a package delivery company,” Pellegrino added. “As you get into a project, you want to narrow that focus as best you can to get basically a more precise value for the software that you're looking at.”
For more information on the webinar click here.
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