We have a major valuation gap because the buyer values our business as a services company, but our operations are powered by a custom AI-driven platform that we believe warrants a tech multiple. How do we structure a joint venture or licensing deal to bridge this gap?

Question

Tyler Smith · Accepted Answer

When a buyer refuses to pay a technology multiple for a tech-enabled services business, you can bridge the valuation gap by separating the operating business from the proprietary software platform. Instead of selling everything in a single transaction, structure the deal as an asset carve-out. Sell the services business at the market multiple, but retain ownership of the custom AI-driven software platform under a separate holding company. You then lease or license the software back to the buyer post-close. This licensing agreement should include a multi-year master services agreement with a recurring monthly fee. To make this deal structure attractive, use your EOS operating tools to show how the software directly drives their profitability. Provide the buyer with historical data showing how the platform reduces headcount costs and speeds up client delivery times. Structure the license with a performance-based royalty tied to the volume of transactions processed through the platform. This allows the buyer to pay less upfront while giving you a highly predictable, recurring revenue stream. It also leaves you free to license the same software platform to non-competing businesses in other industries, turning a valuation disagreement into a lucrative, long-term software business that you still own and control.