Mergers and acquisitions are always hot topics for the channel.
Faced with numerous challenges and unpredictable futures, many technology entrepreneurs are keeping their options open, and a potential exit strategy is often at the top of that list.
“A business could run into unexpected issues that could force a sale, or a potential suitor might come knocking when you least expect it,” CompTIA A/NZ community director and Channel Dynamics director, Moheb Moses, said.
“Regardless of what the future may bring, the best practices to get an IT services company ready for sale will help boost the bottom line and long-term viability.
“After all, actions that increase a business’ revenue and profitability will make it much more attractive. Selling an IT business is a journey, not a destination.
“Whether you are hoping to cash out or retire in a few years, or simply walk away at the top of your game, a long-term exit strategy will help ensure it happens.”
According to Moses, these seven steps will help channel businesses increase value over the longer term, while strengthening operations for sale.
1 - Know the timeline
Just like any major project, providers need to outline their objectives before building an exit or transition plan for their business.
“If retirement is a primary goal for the owner, how soon will they need to cash out?” Moses asked.
“Some set target and stretch goals. For example, they may decide to develop what is realistically a ten-year strategy with milestone expectations at the three and five-year marks.”
2 - Know the company’s true value
For Moses, a business may be such a valuable part of an owner’s life and livelihood that a prospective buyer would have to offer millions to spark interest.
“Many IT service providers are in that situation, but the true worth of their firms to an outsider often pales in comparison to their perceived asking price,” he explained.
“That disparity frequently gets brought to light when a VAR or MSP needs to sell their business.”
3 - Evaluate employee and management needs
When building an exit strategy or transition plan, Moses said one major consideration should be people.
“If an owner plans to stay involved after the sale, what role will they play?” he said.
“In many cases, an acquisition by a larger organisation can be a major plus for employees interested in moving up. Their career paths may expand after the merger, and they may also end up with more lucrative incentives and benefits.”
4 - Get in “sale shape”
“The value of a business is dynamic,” Moses added. “That’s why many IT service providers include major improvement projects as part of their exit or transition strategies.
“They dissect the factors that determine its current price and highlight the things they could strengthen, alter or eliminate.
"Since many buyers look closely at profitability and monthly recurring revenue, both of those areas should receive significant attention.”
5 - Get professional help
Selling the business will likely be one of the biggest moments in an owner’s life, so for Moses, it makes sense to seek help from trusted advisors.
6 - Make the deal
Once both parties have completed their research and due diligence, they may have more questions to ask, and issues to address, before a final decision can be made.
“Are previously discussed financial terms still applicable?” Moses asked.
“Did the discussions uncover any unexpected commitments or monetary issues that could affect the purchase price? These details need to be worked out before a transaction can be completed.”
7 - Share the news
Moses said the final step is crucial to both buyers and sellers, even for those not planning to remain with the business after the sale.
“When the papers are signed and the money has been transferred, there are at least two groups who will need to be brought up to speed,” he added.
“Messages to employees and customers should be clear and, when applicable, instil confidence in the hand-off process.”