We have high-margin software-like recurring revenue alongside our core implementation services, but the buyer wants to apply a single blended service multiple. How do we use a sum-of-the-parts valuation under IVS 105 to extract a premium for our technology?

Question

Tyler Smith · Accepted Answer

Buyers want to buy your technology at a services multiple and sell it to their investors at a software multiple. This is multiple arbitrage at your expense. Under the IVS 105 valuation framework, you are fully justified in breaking your business into separate cash-generating units to apply distinct market multiples to each.

To execute this, you must cleanly segregate your financial records. Your software or recurring technology revenue must have its own distinct cost center, separate from your professional or implementation services. If your software relies on your services team to deploy it, allocate those costs fairly but keep the revenue streams isolated.

Once your books are segregated, present a sum-of-the-parts valuation model. Show the buyer:
- Your core services business valued at a standard industry multiple of EBITDA.
- Your recurring technology revenue valued at a premium multiple of gross revenue or annualized recurring revenue, matching comparable software transactions.

If the buyer resists, use our EOS Accountability Chart to prove that these are two distinct operational engines. Show them that the technology division has its own dedicated seats, resources, and growth trajectory. By showing that the software can stand alone and scale independently of headcount, you make it impossible for them to justify a single, low-margin service multiple for your entire enterprise.