How to Transfer Assets in a SaaS Startup Acquisition
These types of purchases involve a lot of moving parts. Here's the easiest way to do it.
Acquisitions can involve a lot of hard work. Beyond valuations, financing and so on, you need to understand how to isolate acquisition assets, ensure they're transferable and then assign them to the Asset Purchase Agreement (APA). It's a lot to think about!
That said, buyers love asset purchases, because it allows them to acquire assets they're interested in while excluding others (and their liabilities). This reduces risk and saves money for what they plan to do post-acquisition. You also benefit as it might free you to invest in other areas, acquire a new business or simply do more of what you love.
Asset purchases do involve a lot of moving parts, though. With that in mind, read on to learn how to transfer your SaaS assets the easy way.
Why legal help is critical
SaaS acquisitions mostly involve intangible assets such as:
Websites and domain names
Customer lists and data
Patents and other copyright
Unlike fixed assets such as property and machinery, intangible assets are harder to qualify and quantify. The more evidence you have, the stronger your claims, so consult a legal professional before you start negotiating to start from solid ground.
Here are three things you need to do before you close.
Protect your intellectual property
Intellectual Property (IP) includes code, proprietary technology, trademarks, copyrighted assets, patents and so on. You might have trademarked your brand name or slogan, copyrighted your code base or been awarded a patent for a new system or process.
But do you have legal agreements that protect your IP? If so, when the buyer acquires these assets, you simply transfer the agreements to the new name. Otherwise, you'll have to draw up new agreements before entering negotiations, which could stall the acquisition.
Who owns the code?
Many SaaS companies hire contractors to write code, so ensure you have watertight contracts and non-disclosure agreements (NDAs) that protect your ownership rights to contractors' work. Smart buyers will cover this in due diligence, but it's good to get your house in order before you negotiate, or it'll weaken your bargaining power.
Will your hosting provider play ball?
You should also consider the impact of hosting. A buyer acquiring your entire software stack needs reassurance it'll transfer without outages or other customer disruptions. Ensure your hosting provider agrees to the same service level agreements (SLAs) and price, and in the absence of anything concrete, be cynical and assume they might want to renegotiate.
Prepare your teams
You might find buyers interested in your people, not your assets. Why? Well, it might make more sense for them to acquire a team with a proven track record than hire one from scratch. Or perhaps IP is tied to team members, and that's the buyer's only way of acquiring it (refer to the previous section in that case).
Talk to them first
Let you team know you received an offer, and ask how they'd feel about working for someone else. It's a delicate conversation, as you don't want them to think you're selling them off. But if you're moving in a new direction and can't take everyone with you, this could save some heartache. Buyers might also offer better compensation, such as higher salaries and equity.
What about contractors?
Did you hire employees or contractors? Contractors, as noted earlier, are common in SaaS, and without the right employment contracts, your buyer might not be interested. That said, contractors might be willing to join on a more permanent basis and relish the opportunity to work for the acquiring entity. You can always ask.
Audit customer contracts
It can cost up to 25 times more to acquire customers than it does to retain them. Buyers, therefore, might prefer to acquire customers en masse in an asset purchase rather than spend a fortune pursuing their own. Or, they might want to land an important client, kickstart a new enterprise or move into new territory.
Are your customer contracts transferable? Before entertaining offers for your customers, audit your customer contracts to ensure you're free to transfer them in an asset purchase. Then communicate the potential acquisition in advance, focusing on how it benefits customers so as many of them stay as possible when the company changes hands.
Close and transfer: The handover plan
Once you sign the asset purchase agreement (APA), which confirms the transfer of assets to the buyer, you're as good as done. The final step is a handover plan to avoid things getting messy, which should include:
- All the assets moving over
- The specific actions you must take to transfer them
- When they should be moved by
Create a shared drive, file or sheet that you and the buyer can access and update until everything is transferred, including:
Revenue collection. Ensure the buyer has access to payment gateways such as Stripe, Chargify, Braintree and so on to avoid losing sales.
Email accounts and lists. Transfer your email lists, flows and segments for all email clients and CRM clients such as Sendgrid, Mailchimp and HubSpot. You don't want customers being left behind when you sell the business.
Social media accounts. From Facebook to LinkedIn, your business pages are valuable platforms from which the buyer can reach current and prospective customers. Keeping these communication channels open is essential — so share their credentials.
Advertising accounts. Whether it's AdRoll, AdWords or AdSense, ensure your buyer has access to the company marketing platforms to maintain growth.
Hosting services. Your provider probably has a transfer mechanism worth exploring, but if not, it pays to work with the buyer to find the best method.
Domains. Transfer ownership of the domain while keeping the nameservers the same to avoid potential downtime, and for speed, use the same registrar.
Contacts. Create a contact directory for all partners, suppliers and teams so the buyer can get in touch with people important to the running of the business.
You might also consider an escrow service if you're nervous about the buyer's credibility or creditworthiness.
After closing: What happens next?
One of the advantages of an asset purchase is that your business might be left intact after the assets change hands. This means you're free to continue building and serving customers or to take your business in a new direction. All you need to do is update the balance sheet with the reduction in assets and increase in cash. The choice is yours!
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