When it comes to selling small and mid-market technology companies, the traditional investment banking playbook—sending out process letters with rigid deadlines—often does more harm than good. While these processes might work for large-cap deals with well-defined synergies, they rarely align incentives correctly for smaller software firms and their potential acquirers.

Why Process Letters and Strict Deadlines Fail in SMB Tech M&A

Discovery Takes Time, Especially for Smaller Companies

Unlike billion-dollar enterprises with well-documented financials and established industry positioning, small to mid-sized software firms require a level of discovery that can’t be rushed. Buyers need to assess how a target company fits within their broader product and technology strategy—not just the financials. The best acquisitions aren’t just about revenue growth or EBITDA multiples; they hinge on synergies, strategic fit, and long-term vision​.

Artificial Pricing Pressure Leads to Bad Buyer Behavior

In an attempt to maximize valuation, many brokers or investment bankers run tightly controlled bidding processes with aggressive deadlines. The goal is to force buyers into offering high valuations upfront, but experienced acquirers see through this. They often counter by submitting inflated letters of intent (LOIs), knowing they can later use the exclusivity period to renegotiate terms downward​. This “retrading” strategy—where a buyer agrees to one price initially but then systematically lowers it during due diligence—is a direct consequence of artificially forcing a deal process​.

Mismatched Incentives Create Misalignment

The forced timeline of a process letter discourages genuine engagement. Buyers need to understand not only the business model but also key factors like customer stickiness, technology stack, and the team’s ability to scale. When buyers are pushed into an accelerated process, they may sign an LOI just to secure exclusivity—without truly committing to the valuation. This often results in a frustrating, drawn-out due diligence period where sellers are stuck in limbo as buyers look for reasons to lower the price​.

A Smarter Approach: Strategic, Buyer-Driven Discovery

Instead of forcing a rigid timeline, sellers of SMB tech companies should focus on a structured yet flexible approach that allows for:

• Selective buyer engagement: Prioritize strategic buyers and investors who have a strong rationale for the acquisition beyond just financials​.
• Pre-LOI due diligence: Allow buyers to conduct limited but meaningful diligence upfront so that they can confidently put forward a supported valuation​.
• Negotiation leverage through competition: Instead of running an artificial auction, create natural competitive tension by fostering multiple ongoing discussions​.

While aggressive auction processes might temporarily drive up pricing, they often lead to renegotiations, extended timelines, and, worst of all, failed deals. A more strategic approach—focused on true discovery and alignment—results in transactions that are not only higher quality but also far more likely to close at the originally agreed-upon terms. In SMB software M&A, certainty is often more valuable than squeezing out an extra turn on EBITDA.

For sellers looking to maximize value while minimizing risk, the best strategy is not to rush the process but to ensure that buyers have the clarity and conviction needed to offer—and stick to—a price that truly reflects the company’s worth.