CollabraSpace Co-Founder Ray Schwemmer says he would get cold calls all the time from people looking to buy his software company.
"We basically just ignored them," he said at the Baltimore Smart Business Dealmakers Conference. "We weren't ready to sell."
Though he wasn't ready, it was certainly on his mind.
"One of the things that we had done for years is strategic planning," Schwemmer says. "As part of that — I have two partners — we came up with a number. And we said, when we can sell for this amount, we're all good. It'll satisfy our needs. It'll satisfy our families. And we had that number, we reviewed it every year at the strategic planning, it stayed the same."
When the company won a large contract with the government that basically doubled the company's size and put it real close to that number, they started working closely with their investment bankers and legal to be ready to go. That was in January 2021. Because there was a strong sense at the time that the new presidential administration might increase the capital gains tax, it seemed like a good time to get out.
"We tested the markets," he says. "We didn't get a number we wanted. So, we had our number. Nobody hit it. And we were at the time projecting the hockey stick — we just got a contract that was going to double our size. So, we pulled off the market."
The following year, the company went out again and got what they wanted.
"Ours was all based on strategic planning, picking a number that the partners were happy with," he says. "And then when we got to that stage, it was really a no brainer to go out and recoup the money that we had in the company."
Schwemmer says he had the deal team together for many years.
"Our investment banker was on our board for about 15 years."
Around the same time, they started working with their legal team, so everyone knew each other well and trusted one another.
To have similar trust in their buyer, Schwemmer says of the four or five they considered that had offers they would accept, they leaned on their knowledge of the buyers as well as their advisers' opinion of who they thought had the best reputation. They ultimately went with a company that had done acquisitions before — the acquisition was part of the buyer's sixth fund.
In making the decision whether to take all cash and exit or stay in and have some rollover equity he says private equity prefers that the seller have a stake in it.
"They want you to stick around and help grow it. They want to buy your team," he says. "We had a team that was together for almost 20 years. We knew each other. We didn't have to ask questions, everybody just knew what everybody else was doing — you send a quick email and leave a voicemail and everybody just knew what was going on with each other."
He says the buyers gave them an option, a range — a floor and a ceiling. He says he and his partners all agreed that if they take this percent, their families are taken care of, they work a few more years and grow it and if they get that second bite of the apple, they'll have more money.
Looking back, one of the more important aspects of the process, he says, was having a team in place that he could trust.
"I had never sold a company before," he says. "It's the biggest transaction I've ever done. There's a lot riding on it. You're looking at your family, how you're going to take care of them. So, this is a big deal for your family. There's a lot of pressure involved. So, having a team that you can trust ... I was fortunate, the legal team that I had, I had been with them for 15 years or more; investment banking the same. So, I knew these people really well, and I trusted them. So that made life a lot easier. If you're going to sell, make sure you get that team in place sooner than later. And make sure you trust the hell out of them."
