One of the hottest industry sectors for M&A activity right now is informational technology services (IT services). Despite economic uncertainty and political unease, buyers of IT services companies have been quite active. In fact, according to Cap IQ, a leading M&A research provider, nearly 900 IT services companies have been sold in North America in the past three years alone. And this total only counts those transactions that were announced. Generally speaking, for every deal announced there are two or three others go unannounced. So you can see that this industry has been quite active.
If you are surprised by this news, you are not alone. We regularly meet business owners at our M&A conferences that are amazed to hear that buyers are still active. No matter what you hear on TV or read in the press, buyers know that now is the time to buy. So much so that according to some sources, it has become a “sellers market”.
If you own and operate an IT services company, depending on the niche your company is in, now could be a great time to look for buyers. The first step in determining if your company could be of value to buyers is to hire an M&A advisory firm. In some industries it is quite possible to sell your company for the most profit on your own. However, in the IT services field, the complexities of the deal almost make an M&A advisor a necessity. There are several compelling reasons why M&A advisors are vital to closing optimal deals in the IT services industry.
The first is experience. You are an expert in your niche of IT services. You have successfully started and grown a company in a very competitive field. However, you are not an expert in selling companies—you will probably only sell one company in your entire life. Do you really want to “learn on the job” as you are marketing your most valuable possession?
If you are like most business owners, a significant amount of your personal net worth is tied up in two items: your home and your business. If you use a real estate agent to sell your home, you do so because of the person’s experience and skill in selling houses. The same is true of using an M&A advisory firm. Find a firm that has successfully sold businesses and chances are good you will find an optimal buyer.
Time (or lack of time) is the second reason to use an M&A advisor when selling your IT services company. Closing a deal is more than a full-time job. We estimate that if you try to sell your company on your own that you will spend at least 1,000 hours doing so over a nine- to 18-month period.
Since you are probably working more than full-time running your IT services company today, chances are good that you simply don’t have the hours to spare to effectively market it. An M&A advisor will do the heavy lifting, allowing you to continue to run your company. And that really is vital. You need to maintain your company’s growth and profitability during the marketing phase in order to ensure that you are hitting your projected numbers while buyers are looking at you. Having an M&A advisor working for you will allow you to do so.
Before going to market you will need to have a good idea about what your IT services company is worth. If you don’t know your company’s economic value, how can you know which offers to accept? This is a fundamental reason why you will need an M&A advisor: They will provide you with an objective, third-party evaluation of your company.
As we have discussed before, the evaluation phase of the M&A process is extremely vital and very complex. Most business owners that attempt to sell a company on their own end up using old rules of thumb that they have heard discussed at association meetings. Although sometimes these models can be accurate, they usually are not comprehensive and may not address the key strengths that are unique to your IT services company, which is why hiring a professional firm to value your business is absolutely vital.
This is especially true of IT services companies. I am sure you have heard so-called experts explain that IT services businesses always sell as a multiple of “X.” In our experience, “X” can range from sales to earnings to long-term contracts or a multitude of other items that can be measured in your business. The reality is that until M&A professionals look at your company and evaluate it objectively, no one can really tell you what it is worth.
But perhaps the most compelling reason to hire an M&A advisory firm is the reach and scope of contacts that they will have (assuming you hire an M&A advisory with extensive experience).
At the outset, if you are like most business owners, you will make an assumption regarding who the most likely buyer will be. However, an experienced advisory firm will go beyond that assumption and will expand your buyer list to include companies and targets that you may not have considered in the past.
This is a key strength that they will bring to the table for you. The contacts they have in the buying universe far surpass any list of possible contacts that you may have. This is vital in finding an optimal buyer for your company.
These are just a few of the reasons why you should hire an M&A advisory firm if you are considering the sale of your IT services firm. There are lots of others, but time and space do not allow me to list them all.
If you would like to learn more about selling your company, I would invite you to attend a Generational Equity workshop. We hold these throughout North America and they are designed to help the middle-market business owner learn more about the M&A process.
Don’t attempt to sell your company on your own, especially if you want to maximize the value through a professional marketing campaign. This is especially true if you own an IT services company. Given the current state of our economy, companies that help businesses automate and streamline operations are extremely valuable. Professional buyers know this and are quite active despite macro economic uncertainty.
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