Preparing Cloud Infrastructure for Exit

Preparing Cloud Infrastructure for Exit

When PE firms prepare a portfolio company for exit, the standard playbook includes financial statement cleanup, management team strengthening, customer concentration analysis, and go-to-market refinement. What most firms overlook -- to their detriment -- is preparing the cloud infrastructure for buyer scrutiny.

This is a costly omission. Sophisticated buyers now routinely include cloud infrastructure assessment in their technical due diligence. What they find directly influences their bid: how they model margins, how they assess technology risk, and ultimately what multiple they are willing to pay.

With 6-12 months of preparation, you can transform cloud infrastructure from a valuation liability into a valuation asset. Here is what buyers look for and how to prepare.

What Buyers Actually Evaluate

Having advised on both sides of technology transactions, I can tell you exactly what a competent buy-side technical diligence team examines in cloud infrastructure:

Cost trajectory and composition. Buyers analyze 12-24 months of cloud billing data. They are looking for trends: Is cloud cost growing faster than revenue? What is the cloud cost as a percentage of revenue, and how does it compare to industry benchmarks? Can the company decompose spending into COGS and OpEx components?

A company where cloud costs are growing at 40% annually while revenue grows at 25% raises immediate flags. It suggests that the company's unit economics degrade as they scale -- the opposite of what buyers want to see.

Optimization discipline. Buyers evaluate whether the company actively manages cloud spending. Key signals include: RI/Savings Plan coverage ratios, tagging coverage, evidence of regular cost reviews, and historical optimization initiatives. A company with 70%+ commitment coverage and 85%+ tagging compliance signals operational maturity. A company at 0% and 20% respectively signals the opposite.

Margin sustainability. Buyers model forward margins based on the current cost structure. If they believe 30% of the cloud bill is waste, they will discount the current margin profile and model a higher margin in their DCF -- capturing that value for themselves rather than paying the seller for it.

Architecture scalability. Can the current architecture support 2-5x growth without proportional cost increases? Buyers look for evidence of autoscaling, efficient data management, and architecture decisions that enable economies of scale. A well-architected environment should exhibit decreasing cost per unit (customer, transaction, API call) as volume increases.

Separation readiness (for carve-outs). If the transaction involves carving out a business unit or product line from a larger entity, buyers need confidence that the cloud infrastructure can be cleanly separated. Shared databases, co-mingled services, and entangled IAM policies can make carve-outs expensive and risky.

The 12-Month Preparation Timeline

I recommend beginning cloud infrastructure preparation at least 12 months before an anticipated exit. Here is a month-by-month roadmap:

Months 1-3: Foundation

Implement comprehensive cost allocation tagging. This is the single most impactful preparation step. Define a mandatory tagging standard that includes: Environment (production, staging, development), Team/Owner, Product/Service, Cost Center, and Customer (for single-tenant deployments).

Enforce tags through automated policies using AWS Config rules or SCPs. Target 90%+ coverage within 90 days. This gives you 9+ months of tagged cost data to present during diligence -- demonstrating both the cost structure and your governance discipline.

Decompose cloud costs into COGS and OpEx. Work with finance to accurately categorize cloud spending. Production workloads serving customers are COGS. Everything else -- development, CI/CD, internal tooling, analytics -- is OpEx. This exercise often reveals that gross margins are different (usually lower) than previously reported, but it is far better to discover and address this proactively than to have a buyer discover it during diligence.

Establish unit economics tracking. Calculate and begin tracking: cloud cost per customer, cloud cost per transaction, cloud cost per $1 of ARR. These metrics should trend favorably (downward) over time, demonstrating economies of scale.

Months 4-6: Optimization

Execute a comprehensive optimization sprint. Follow the 90-day playbook (see my article on post-acquisition cloud optimization) to capture quick wins:

• Eliminate zombie resources
• Right-size over-provisioned instances and databases
• Implement commitment-based pricing (RI/Savings Plans)
• Optimize storage with lifecycle policies and appropriate tiering
• Schedule non-production environments

Target outcome: 20-30% reduction in monthly cloud spend. This improves your trailing EBITDA for the 6+ months before exit, directly increasing the valuation base.

Document all optimization actions and results. Create a clear record showing what was done, when, and the resulting savings. This documentation serves two purposes: it demonstrates optimization discipline to buyers, and it shows that easy wins have already been captured (reducing the buyer's ability to discount your valuation based on "we will optimize after close").

Months 7-9: Architecture and Governance

Address architectural inefficiencies. With quick wins captured, focus on structural improvements that require more engineering investment:

• Implement autoscaling for variable workloads
• Migrate to current-generation instances (Graviton/ARM where applicable)
• Containerize key workloads if not already containerized
• Optimize data transfer architecture to minimize cross-AZ and cross-region costs

Establish ongoing FinOps governance. Implement the processes that demonstrate sustained cost management discipline:

• Weekly cost review meetings with documented agendas and action items
• Monthly cost reports to executive leadership
• Automated anomaly detection and alerting
• Budget tracking by team and environment with variance analysis

Prepare architecture documentation. Create clear, current documentation of the cloud architecture including: service dependencies, data flows, infrastructure-as-code coverage, and scaling characteristics. Buyers will request this during diligence -- having it ready signals preparedness and reduces perceived risk.

Months 10-12: Polish and Documentation

Prepare the cloud due diligence data room. Organize the following materials for prospective buyers:

• 12+ months of tagged cost data with trend analysis
• Cloud cost decomposition (COGS vs. OpEx) with methodology
• Unit economics trends (cost per customer, cost per transaction)
• RI/Savings Plan coverage analysis and commitment schedule
• Architecture diagrams and documentation
• Security posture summary (compliance certifications, vulnerability scan results, encryption standards)
• Operational metrics (uptime, deployment frequency, incident history)
• Optimization history and results

Conduct a mock technical diligence. Engage an independent advisor to conduct a buy-side-style cloud infrastructure assessment of your own environment. Identify any remaining issues that a buyer would flag and address them before they appear in a real diligence report.

Ensure separation readiness (if applicable). For carve-out scenarios, document all shared infrastructure components and create a separation plan with cost and timeline estimates. This dramatically reduces buyer uncertainty and eliminates a common source of post-LOI negotiation friction.

The Financial Impact of Preparation

Let me quantify the impact of this 12-month preparation program for a typical portfolio company:

Starting position: $20M ARR, $3M EBITDA, $2.5M annual cloud spend, cloud maturity score of 1.8.

After 12 months of preparation:

• Cloud spend reduced to $1.8M annually (28% reduction)
• EBITDA improved to $3.7M (from cloud savings alone, not including revenue growth)
• Cloud maturity score improved to 3.8
• Valuation impact: eliminated 0.5-0.75x multiple discount, potential for neutral-to-positive cloud assessment

Valuation comparison:

That $9.9M in additional enterprise value is the return on a 12-month program that costs approximately $100K-$200K in advisory and implementation resources. The ROI is extraordinary.

The Buyer's Perspective

Ultimately, exit preparation is about controlling the narrative. When a buyer evaluates your cloud infrastructure, they will form one of two impressions:

Impression A: "This company has significant cloud waste. We can cut 30% after close, which means current margins are overstated. We should discount our bid accordingly -- and we know the optimization will require 3-6 months of management attention post-close."

Impression B: "This company demonstrates strong cloud governance. Margins are optimized and sustainable. The architecture is well-documented and scales efficiently. There is minimal technology risk and no hidden infrastructure liabilities."

Impression B commands a better multiple. Not because the buyer is being generous, but because they are modeling lower risk, sustainable margins, and less post-acquisition work. That is worth paying for.

The 12 months you invest in cloud infrastructure preparation may be the highest-ROI activity in your entire exit playbook.

Ready to evaluate cloud economics in your next deal? Book a free discovery call to discuss your specific situation.