Yesterday kicked off day 1 of Karl Palachuck’s Managing for Success 2012 online conference. The discussions covered, seemed to resonate a definite change in the industry and a potential rocky road ahead for MSP’s and IT solution providers unwilling to embrace the coming changes. The impact of mobile users, the new millennial tech savvy generation (18-29yr olds), vendor direct competition, and cloud computing is challenging traditional and even managed service models.
George Sierchio, Partner, Cogent Growth Partners was on hand to close the day with the topic “Mergers and Acquisitions in the IT Channel.” George pointed out some of the reasons why companies are looking into merging or selling their companies. Some of these included “plateauing”; a continued leveling off of potential growth due to competition or market saturation, the current economy, as well as the recurring revenue model created with managed services, providing a better opportunity for buyers.
Though selling is of great interest, many companies are choosing to merge with other providers. Providers are finding they can add talent to their pool, get into new markets or verticals, and infuse needed capital into the company. Sierchio recommends merging for companies under a million dollars in revenue. The current state of the economy has created opportunities for IT solution providers for mergers and acquisitions. Sierchio stated “you should be receiving 2 offers a year” and should be willing to entertain any offer that is presented.
Sierchio touched on pricing an IT solution business and pointed out that there is no easy equation that is a definitive way to value a company. Though he was very adamant that product sales should be a minimum part of counted revenue; service is the name of the game here, as well as net cash or EBITA. Professional advice may be the best way to get a proper valuation on a company. It is important to get an accurate valuation in order to confirm both sides are getting a positive experience out of the merger or acquisition.
Cultural and strategic alignments are a very important aspect of any potential convergence. Synergies in goals, company policies, and employee interaction can make or break a deal, and are far more important than any technical differences that may be encountered. Be sure to spend a great deal of time planning and confirming cultural integration prior to completion of any potential deal.
The big surprise in the conference was the “anonymous” questions regarding this topic. This may speak to the growing interest in the opportunities of M&A’s, but also may be an indicator of tougher and changing times. More and more of the IT solution provider and Managed Service community are being presented with a vision of the road ahead. It is apparent that change is occurring in the industry. Now may be the right time to consider consolidation, or at least to start planning ahead for a not so clear future.
Posted on Jun 27, 2012