The buyer wants to exclude our proprietary internal software from our enterprise valuation because we do not sell it to external customers. How do we structure the deal to prove this technology drives our margins and must be valued?

Question

Tyler Smith · Accepted Answer

Buyers often try to segregate proprietary internal software, labeling it as a mere overhead cost or an IT asset rather than an intellectual property value driver. If your software is the engine that allows your team to deliver services faster, cheaper, and with higher margins than your competitors, it is a core value driver that belongs in your enterprise valuation. To defend this, you must explicitly link your proprietary technology to your operational efficiency and customer retention metrics. Use your EOS Scorecard to show how the software accelerates your delivery timelines, lowers your cost of goods sold, and improves client satisfaction. In your deal negotiations, refuse to let the buyer strip this asset out of the transaction. You can structure the transaction as a stock sale where all intellectual property transfers with the operating company, or negotiate a licensing structure if they only want to acquire specific assets. Prove that without this proprietary software, the historical EBITDA they are multiplying would instantly collapse. By showing that your technology is deeply embedded in your core processes and is the sole source of your competitive advantage, you force the buyer to value your business as a highly integrated, tech-enabled platform rather than a legacy service firm.