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So, what should you focus on if you’re thinking of buying or selling an IT services business? Here are three recommendations from experts.
1: Get your financial house in order. If you are thinking about selling, you better have a good handle on your balance sheet — from both a short- and long-term perspective. “We always tell people that it is a good time to be a seller when you have a very good view into your near-term future,” said M&A adviser Martin Wolf.
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Logicalis’ CFO Greg Baker said one of the most important financial indicators is recurring revenue streams. That data provides insight into the health of the organization’s customer relationships and cross-selling opportunities and into whether its business processes are efficient.
It might take a couple of years to make sure an IT solution provider’s balance sheet demonstrates the company’s true business value, said Heartland Technology Solutions CEO Arlin Sorenson. “We buy assets and people. We don’t buy baggage,” he said.
2: Hire a good adviser who can help your team be objective. Whether it’s an attorney, banker or certified public accountant, make sure you have an independent adviser involved in M&A discussions if you want to get the best deal value -- whether you are a buyer or a seller.
“From both sides, one of the key things you have to have is a strong team of advisers, partners, folks that can give you quality control,” said Sorenson.
Inevitably, there will be at least one “gotcha” sometime during the negotiations that requires the attention of an independent adviser, he noted.
3: Don’t forget culture. “From the buy side, the hardest thing for any merger is culture. At the end of the day, what will make or break a deal is culture,” Sorenson said. “It is harder than you think to integrate companies, and you need to take more time than you’d think. … Planning is a key element to this.”
Logicalis’ Baker also noted that far too many deals fall apart because the integration plan failed to account for the best ways to communicate merger vision to employees — and to help them realize that vision. “That is the piece that is most critical but people often don’t spend time on that,” he said.
About the expert
Heather Clancy is an award-winning business journalist in the New York area with more than 20 years experience. Her articles have appeared in Entrepreneur, Fortune Small Business, the International Herald Tribune and The New York Times. Clancy was previously editor at Computer Reseller News, a B2B trade publication covering news and trends about the high-tech channel.