A small 20 year old software company with a great product in an evolving market was determined to grow. Over the years management had launched several initiatives including expansion into new products in entirely new markets.
After reviewing their current growth strategies and using a planning approach which assumes capital is unlimited to finance a growth plan, we encouraged the Company to consider selling its flagship software on a rental basis or ASP as it's commonly referred to in the industry. The valuations for successful ASP companies at the time were very high. Historically the Company had sold its solution for over $1 million per solution and as a result the sales process was long and the market small. This new pricing could make the sales cycle very fast and highly scalable and open up the market to small customers.
Building on this new model, management then identified a strategic acquisition that was already servicing a growing segment of the market. Tunstall helped management secure a letter of intent to buy the company. Complied in the business plan, this $8 million in revenue and $500,000 in net income Company raised $22 million of growth and acquisition capital, maintained control, as well as the ability to earnback substantial equity based on performance.
Within three years, the new ASP based product was growing at 60% per year annually while the total Company experienced 40% annual growth. Within five years of our initially planning exercise, management sold the business to a strategic buyer for $92 million cash. At the time of the sale management owned 55% of the Company.