tech-company, valuation, private-companyIn buying a small software (SaaS) company with only one software product, how much would outdated architecture such as the product being written in VB6 (a 15 year dead programming language) affect the valuation multiple?
In specifics, looking at a niche company with consistent profit (roughly $100k SDE) over 10+ years, but no appreciable growth (high churn, relatively stable total number of customers).
Specifically, though, how much would the outdated architecture of the main product (moderately sized package around 100k LoC with upgrade cost estimated to be 150k-250k) affect the valuation multiple for buying/selling?
How much would it affect it if no technical talent was included in the sale?
Difficult to answer exactly but it may be helpful to break it down to the approach to valuation.
Value of customers: If the sale is to a company that has a similar product/service and the long term plan is to eventually port the customers over the valuation will not really be impacted. From the scenario you described it is possible that this is more of a acquisition of the customers.
Buying it for the cash flow: In this case, the value is simply a factor of the expected future cash flows. So the value will degrade to the extent that the architecture will start to degrade where the clients start to churn. And if no tech talent is coming over I suppose it is likely the technology will degrade even faster. So here the discount would be moderate to major. You would simply have to model out and estimate how long that platform can keep going while maintaining customers.
Buying it for growth: In this case the valuation will likely be greatly impacted as it sounds like there is not a ton of new customers coming on board.
I have been involved acquisitions of these types. And the first type we completely ignored the poor technology. In the third type much of the value was in the technology.
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