M&A Forum

Liquidity: The M&A Forum Blog

February 2009 - Posts

  • Business Buyers Are Ready to Act! -- Don’t Psych Yourself Out of a Liquidity Event

    Psychology is a key part of success in the marketplace conditions of today. Understanding what we know (really know) and what we don't, can make the difference between liquidity, and just being ‘stuck'. For example, M&A Forum currently has a number of mandates from legitimate buyers of IT sector companies. These buyers are actively looking for businesses they can add to their existing portfolio in order to continue growing, when organic growth is not sufficient or isn't there at all.

    Here are a few descriptions of the kinds of businesses currently being sought by several active M&A Forum buyers:

    1. A growing, profitable $500M+ company seeks a Cisco Gold Partner with > $20M revenue for immediate acquisition.  Strong Cisco technical expertise, and professional pre-sales consultation experience addressing enterprise-level commercial clients.  Also seeking solid management that wants to stay, and a business possessing financial and back-end infrastructure systems and processes to efficiently manage the services business.

    2. A $70M+ technology management firm seeks IT Managed Services providers with >$4M revenue, EBITDA positive financial performance and growth potential of at least 15% annually. Prefer a Western US location and an independently-owned operation with a quality, entrepreneurial management team committed to managing and growing the firm for at least several years.

    3. A highly profitable SAP consulting firm seeks acquisition candidates with revenue in the range of $1M - $3M for an immediate opportunity to help accelerate growth beyond its current forecast of 40% over 2008.  Targets should have expertise in SAP, Business Objects or Hyperion HFM serving the healthcare, manufacturing or energy sectors.

    4. U.S. based consulting firm wants to acquire multiple professional services firms in the Northeast, focused on ERP, software development and BI consulting.  Ideal candidate is Oracle or SAP-focused with revenue in the range of $8M to $12M, >20 consultants, and operations serving mid-market and enterprise-level commercial accounts.

    5. Government integrator, in business for more than 20 years, seeks IT services and solutions firms for acquisition. Targets should have >$1M revenue, EBITDA of at least 10% and be headquartered in the U.S.  Oracle and SAP consulting, and IT Managed Services businesses preferred.

    6. Established provider of Managed Services to the SMB marketplace seeks companies with services revenue in the range of $500K to $2M.  Prefer a Managed Services provider, but this is not required.  Must have an SMB customer focus and an owner willing to stay for at least a year.  Areas of greatest interest include Denver, Chicago and Phoenix, but other cities will be considered.

    7. A business providing IT solutions to the retail sector seeks companies with revenue in the range of; $5M to $30M focused on SaaS, and network infrastructure services, with the ability to serve customers on-site. There is immediate opportunity for transactions in Texas, California, Virginia and the Southeast.

    I recently spoke with a company that would be a great fit for one of these buyers. I asked what their expectations were as to the value of their company. Their expectations as expressed to me, were quite reasonable, and I knew that at least a couple of viable buyers were currently looking for a business just like theirs. Their reply was telling, "In this environment nobody is going to pay us what we are worth." Even though we have a ready, willing and able buyer, willing to pay fair value for the company - they cannot escape the psychology of the market that they interpret as "I can't get fair value, because the market is discounting everything".

    They are speculating, or worse, guessing about things they know nothing about, and it is costing them. It is becoming clear that there is no certainty about values being higher tomorrow, than they are today. The conversation should be, "Are you a seller?" Answer. "Yes, if there is a buyer who will meet my price". This is what achieving liquidity, and being able to diversify out of the large investment in your business asset, is all about.

    Our job is to understand the market for IT sector companies, the buyers and the sellers that might make for good matches. We don't run IT sector companies - we help find the right buyer and the right transaction. If the match is made - good things can happen for all concerned.

    If the presumption is indulged that ‘It can't be true that my company is saleable today for fair value' and you fail to take the step in the direction of a solid buyer....then you make the "It can't be true..." a self-fulfilling prophecy. And, by the way - we will tell you if we don't think we can get fair value for your company today - and will discuss with you what is required to get positioned to receive fair value for your business asset. There are buyers waiting...

    Posted Feb 10 2009, 11:18 PM with no comments


  • Getting “More Strategic” in Difficult Times

    We live and work in the IT sector of the business world, and ‘our business' is helping owners and entrepreneurs with the sales process for the most important business asset they have: the IT business that is ‘their baby'.  The most strategic decision to be made in the life of the business is often "How do I turn my business into cash, or stock in another company, such that I can not have all of my eggs in one basket?" In other words "What is my exit strategy?" What is the strategy that will successfully monetize all of your hard work, and reward the risks you have taken through the years?

    First things first. In the economic environment which we are experiencing now, the most important step in getting to the decisions around a sale of your business asset is taking the steps to immediately and successfully manage it in a downturn. If you don't do this first-there may be nothing left to sell. In this blog, I will address several of these ‘must dos':

    1. Be sure you can articulate your business proposition in terms relevant for today's challenging economy. Is your value proposition clear, unambiguous, and to the point? More importantly, if you are stating it the way you did last year, and the year before, is it still relevant today? Given the importance of providing a clear ROI on the IT spend that will be made with your company, can you ‘prove the value' of your business offerings. If you cannot prove the ROI in an understandable way, you are less likely to continue to ‘get the order'.

    2. What can be done to create some rapid sales improvements? Conduct an account assessment by the relative profit contribution made to the bottom line of your company...a novel approach. This requires an understanding of the margin and costs by account. But then-you can refocus your limited sales and support resources on those accounts that are more profitable and faster growing.  And you know what to do with those that are marginally profitable or producing losses. No free rides!

    3. Instead of short term cost reductions, take the opportunity to see if there are ways to dramatically change the real structural look of your costs. Can you use contractors and make the labor expense variable? Can you use voice systems to connect support calls directly with the person who can solve the problem (reduce the layers)? Can you use offshoring for certain of your business processes? What business owner do you know in your area who has lead the way with new and innovative best practices in the area of structural cost improvement? Meet with them-and ask for help.

    4. What has the devaluation in assets over the past months, created in terms of business opportunity for you-if you reframe the question into ‘how do I take advantage' rather than OMG! Buyers of products and services want to know they are getting best value to meet their requirements. What tools can you create today to be the best at proving the business value in choosing your business and your solution? What can you say about the longer term value of a relationship with your business?

    The reality is that there will be more competition for fewer dollars across the spectrum of IT and software service and solutions companies. This means that margins will be under pressure. There will most likely be a decline in IT spend for some period of time. How do you put your business in a position to take market share and gain more of the limited spend? How will you meet the challenges of tight credit and receivables that are extended beyond normal? There are answers---but the questions need to be addressed head on and without delay.

    The truth of the matter is that in a downturn of the magnitude we are facing: "Strategy" is "Execution"....precision execution of your business operations is where the rubber meets the road.  And, it is the requisite step in creating the road ahead; the road to successful monetization of your business asset, at the appropriate moment.

    Posted Feb 05 2009, 12:37 AM with no comments