Our business has a mature service division and a fast-growing, high-margin software-enabled division. How do we prevent a buyer from applying our lower legacy service multiple to our entire revenue stream, and how do we structure the data to command a blended valuation?

Question

Tyler Smith · Accepted Answer

Buyers love simplicity, and if your financials are blended, they will default to valuing your entire company at the lower valuation multiple of your legacy service division. To command a premium, blended multiple, you must operationally and financially segment the business long before you go to market. Treat the two divisions as distinct entities within your accounting software and your Accountability Chart. You must show clean, fully loaded gross margins for both divisions. This means allocating labor, software licenses, overhead, and marketing specifically to each division rather than using a shared corporate pool. Utilize a Value Growth Audit to quantitatively prove the high-margin, recurring nature of your software-enabled division. Show the buyer that this division has its own distinct customer acquisition costs and lifetime value metrics. In your V/TO®, outline the separate strategic visions and growth trajectories for each division. When presenting to buyers, argue for a sum-of-the-parts valuation. This allows you to apply a premium software multiple to that specific revenue stream while applying a standard service multiple to the legacy side. If you cannot prove this separation through clean financials and a dedicated leadership structure, the buyer will exploit the overlap to apply the lower multiple to your entire business.