We run a tech-enabled services business with a high-margin software division and a consulting division, and the buyer is trying to apply a single, low services multiple to the entire company. How do we negotiate a blended valuation structure?

Question

Tyler Smith · Accepted Answer

Buyers will always try to simplify your business model to the lowest common denominator to justify a lower multiple. If you let them apply a standard services multiple to your entire company, you are giving away your high-margin software assets for free. You must force the buyer to segment your valuation.

To do this, you must prove that your software and services divisions operate as distinct, scalable units. This starts with your EOS® Accountability Chart. Show the buyer that your software division has its own dedicated leadership, separate scorecards, and clean, un-siloed financial reporting.

We recommend negotiating a blended valuation structure using these tactics:
- Present segmented profit and loss statements that clearly separate the recurring software revenue from the consulting revenue.
- Negotiate separate multiples for each division, such as an enterprise value-to-revenue multiple for the SaaS unit and an EBITDA multiple for the consulting unit.
- Use your V/TO® to show how the consulting division acts as a low-cost customer acquisition engine for the high-margin software division.

When you demonstrate that your business model is a synergetic ecosystem with clear, clean operational boundaries, you can successfully defend a blended multiple that maximizes your total transaction value.