Shoot the Moon with Revenue Rocket: Recent Episodes
Revenue Rocket Consulting Group
The Shoot the Moon podcast is for IT business owners and executives. Host Mike Harvath, founder and CEO of Revenue Rocket brings his experience with M&A and growth strategies to IT Services company leaders worldwide.
Owner dependency is the quiet risk that caps valuations in IT services M&A. If every decision, client relationship, and process runs through the founder, buyers see a single point of failure and pay less for it.
In this episode of Shoot the Moon, we break down how to get the business out of your head before you sell. We cover why buyers discount founder-run companies, what to document first, how AI has made process documentation far easier, and how a documented, transferable business can earn a higher multiple.
This is core IT services M&A preparation, and it makes your company more valuable whether or not you ever go to market.
CHAPTERS
0:00 Intro: Getting the business out of your head
0:53 A job with employees, not a company
2:36 Why buyers discount owner dependency
6:29 Why IT services founders get stuck
11:41 What to document first
16:36 AI, repeatability, and productized services
20:43 How documentation lifts enterprise value
24:08 Building a culture of documentation
27:45 The one thing to start this month
KEY TAKEAWAYS
• Owner dependency is concentration risk. When decisions bottleneck through the founder, buyers see a single point of failure and discount the price.
• If the answer to everything is “ask the owner,” you own a job not a company. Continuity is what buyers pay for.
• Start documenting where the customer sits: the sales motion first, then service delivery, followed by how you hire and develop people. Bring the team into the process.
• AI has collapsed the cost of documentation. Capture the real process, optimize it, and build agents around it.
• Documented, transferable businesses can earn higher multiples because buyers underwriting scale need a company they can integrate without depending on the founder.
RESOURCES AND LINKS
• Read more from Revenue Rocket: https://www.revenuerocket.com/blog/
• Value your business: https://www.revenuerocket.com/valuation-calculator/
• Schedule a confidential conversation: https://www.revenuerocket.com/contact-us/
• Listen on Apple Podcasts: https://podcasts.apple.com/us/podcast/shoot-the-moon-with-revenue-rocket/id1478519505
• Listen on Spotify: https://open.spotify.com/show/6y7u9KuOjaplhScHtINGZU
• Explore more Shoot the Moon episodes: https://www.revenuerocket.com/series/shoot-the-moon/
• Visit Revenue Rocket: https://www.revenuerocket.com/
ABOUT REVENUE ROCKET
Revenue Rocket is a sell-side and buy side M&A advisory firm focused exclusively on IT services companies, including MSPs, cybersecurity firms, cloud service providers, custom application development companies, and VARs.
For more than 25 years, Revenue Rocket has helped founders grow, position, buy, and sell tech-enabled services firms.
Thinking about your own exit? Schedule a confidential conversation with our team:
https://www.revenuerocket.com/contact-us/
MergersAndAcquisitions #ITServices #MSP #ShootTheMoon #RevenueRocket #ExitStrategy #FounderDependency #EnterpriseValue
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In IT services M&A, owner dependency is one of the biggest hidden discounts on your company’s value. This episode shows how to build an owner optional firm that buyers pay a premium for without pretending leadership does not matter.
Revenue Rocket kicks off a new Shoot the Moon masterclass on reducing founder dependency before a sale or recapitalization. We break down why buyers price owner dependency as concentration risk, what an owner-optional firm actually looks like, and the leadership layer, sales transfer, and key-employee retention strategies that protect your multiple.
If you are thinking about an exit, this is the IT services M&A preparation that pays off long before you go to market.
CHAPTERS
0:00 Introduction: The owner-optional firm
3:44 What owner dependency costs you at exit
5:26 Replaceable, not optional
10:06 The one-percenter salesperson problem
13:40 The minimum leadership layer buyers expect
18:29 Keeping your key people through a sale
21:11 One move to make this quarter
25:30 What is next in this masterclass series
IN THIS EPISODE
• Buyers price owner dependency as concentration risk, much like they treat a client representing 50% to 70% of revenue.
• Owner-optional does not mean owner absent. No CEO is optional; the goal is to make critical roles replaceable.
• The founder’s sales role is usually the highest-value dependency to transfer first.
• Buyers expect a real leadership layer, including finance, delivery, and technical depth beyond the founder.
• Plan key-employee retention before the deal not during it.
RESOURCES AND LINKS
• Read more from Revenue Rocket: https://www.revenuerocket.com/blog/
• What is your firm worth? https://www.revenuerocket.com/valuation-calculator/
• Schedule a confidential conversation: https://www.revenuerocket.com/contact-us/
• Listen on Apple Podcasts: https://podcasts.apple.com/us/podcast/shoot-the-moon-with-revenue-rocket/id1478519505
• Listen on Spotify: https://open.spotify.com/show/6y7u9KuOjaplhScHtINGZU
• Explore more Shoot the Moon episodes: https://www.revenuerocket.com/series/shoot-the-moon/
• Learn more about Revenue Rocket: https://www.revenuerocket.com/
ABOUT REVENUE ROCKET
Revenue Rocket is a sell-side and buy-side M&A advisory firm focused exclusively on IT services companies, including MSPs, cybersecurity firms, cloud service providers, custom application development companies, and VARs.
For more than 25 years, Revenue Rocket has helped founders grow, position, buy, and sell tech-enabled services firms.
Thinking about your own exit? Schedule a confidential conversation with our team:
https://www.revenuerocket.com/contact-us/
MergersAndAcquisitions #ITServices #MSP #ShootTheMoon #RevenueRocket #ExitStrategy #OwnerOptional #FounderDependency
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
IT services M&A is in one of its most active stretches in years. We explain how private equity defines the market, the platform and tuck-in roll-up strategy behind most deals, and how AI is separating premium platforms from commoditized providers. You will also hear which segments are hot, which are cooling, and the exact questions to ask when an investor calls.
Timestamps & Chapters0:00 – Why private equity keeps calling
1:13 – How we define the IT services market
4:11 – The long tail: ~50,000 firms and three channels
7:03 – Why PE targets IT services: growth and recurring revenue
12:31 – Predictability drives investment
13:48 – Platform and tuck-in roll-up strategy (the math)
16:32 – AI and the services-as-software shift
18:27 – Raising the bar: AI-enabled service delivery
24:06 – Go AI-first or fall behind
26:28 – Hot vs cooling segments (specialize, verticalize, productize)
29:13 – What to do when private equity calls
33:18 – Closing thoughts
Key TakeawaysPredictable Cash Flows: Private equity favors IT services because recurring and repeat revenue make future cash flows highly predictable.
The Roll-Up Strategy: The dominant model relies on buying a platform company around 5–7x EBITDA, scaling via tuck-ins, and exiting near 8–12x.
The New Minimum: Recurring revenue above 50% used to impress investors—today, it is the bare minimum expectation.
Market Temperature:
Hot: Cybersecurity, AI & Machine Learning, regulated cloud, OT/industrial, and vertically focused MSPs.
Cooling: Pure staffing and generalist break-fix providers.
When PE Calls: Prepare beforehand: know your numbers inside out and engage a specialist M&A advisor.
Links & ResourcesBlog Post: Read the full article
Valuation Tool: Free Valuation Calculator
Schedule a Consultation: Book a confidential conversation
Podcast: Listen on your favorite podcast platform
Official Website: Revenue Rocket
About Revenue RocketRevenue Rocket is a sell-side and buy-side M&A advisory firm focused exclusively on IT services companies, including MSPs, cybersecurity, cloud, custom application development, and VARs.
MergersAndAcquisitions #ITServices #MSP #ShootTheMoon #RevenueRocket #ExitStrategy #PrivateEquity#AIinITService
Getting calls from private equity? Do not wing it. Schedule a confidential conversation with Revenue Rocket to understand your options and your value.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Revenue Rocket’s Mike Harvath, Ryan Barnett, and Matt Lockhart break down the real reasons
founders delay an exit, and why the safest-feeling choice is often the most expensive. This episode
of Shoot the Moon covers the “one more year” trap, founder dependency, succession planning, derisking customer concentration and contracts, and why knowing your valuation is the first move in IT
services M&A. If you run an MSP, MSSP, cloud, dev, or VAR business, this is the timing
conversation to have before the market decides for you.
CHAPTERS
0:00 Cold open and welcome
1:56 Why founders delay a sale (the “one more year” trap)
5:46 Run it forever, but stay ready to sell
6:26 Owner dependency and building a machine
12:27 What succession planning really looks like
16:07 Enjoy what you have built vs. the window to sell
21:30 De-risking: customer concentration and contracts
22:23 Know your number: the case for annual valuations
24:40 One move to make this week
28:45 Closing thoughts: have a plan
KEY TAKEAWAYS
● Waiting one more year can lower value, not just raise it. You carry 100% of the downside.
● Buyers pay for a business that runs without you. Build the bench and reduce founder
dependency.
● Real succession planning is documented and executable, not a someday idea.
● De-risk before you go to market: diversify clients, fix contract assignability, deepen the team.
● Know your number. An annual valuation is good corporate hygiene and a stage gate for
timing.
LINKS
● Blog post: [BLOG LINK]
● Valuation calculator: revenuerocket.com/valuation-calculator
● Schedule a confidential conversation: [SCHEDULING LINK]
● Website: revenuerocket.com
ABOUT REVENUE ROCKET
Revenue Rocket is a sell-side and buy-side M&A advisory firm focused exclusively on IT services
companies, including MSPs, cybersecurity, cloud, custom application development, and VARs.
HASHTAGS
MergersAndAcquisitions #ITServices #MSP #ShootTheMoon #RevenueRocket #ExitStrategy
SuccessionPlanning #BusinessValuation
Thinking about your own timing? Schedule a confidential conversation with Revenue Rocket at
revenuerocket.com/contact-us.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Vertical specialization is one of the most reliable ways to raise both growth and valuation in IT
services M&A. In Episode 254 of Shoot the Moon, we break down how focusing on one or two
industry verticals, and building the sales team to match, makes an IT services firm worth more
to buyers.
Most IT services firms start as generalists because it is the fastest path to revenue. But in a
market where AI is commoditizing technical skill, domain expertise is what buyers and clients
pay for. We cover why vertical focus shortens sales cycles and lifts valuation, how the hunter
and farmer sales roles work, and how to compensate and hire for a vertical model. We close
with three practical steps you can take this week to find and commit to the right vertical.
CHAPTERS
Timestamps are approximate and must be verified against the final edit.
0:00 Cold open and intro
4:05 Specialize, verticalize, productize: the framework
7:00 Why vertical expertise matters more in the age of AI
9:30 Why most IT services firms default to generalist
12:30 What verticalizing takes, and the payoff
16:50 The sales team: hunters, farmers, and support roles
Revenue Rocket Consulting Group | Shoot the Moon Episode 254
20:40 Hiring for a vertical: fish where the fish are
24:10 Compensating hunters vs farmers
28:00 What buyers see: vertical focus and valuation
32:40 Where to start this week
35:30 Wrap-up
KEY TAKEAWAYS
AI is commoditizing technical skill, so domain expertise is the differentiator buyers pay for.
A vertical focus shortens sales cycles, sharpens marketing, and tends to lift valuation.
Selling is a team sport: hunters win new logos, farmers grow accounts, with a handoff inside
the first 12 months.
Concentrating in a vertical is a strength; depending on a few clients is a risk buyers
discount.
Start by analyzing where your revenue already concentrates, then commit to a market you
are passionate about.
LINKS
Blog: [BLOG LINK]
Valuation calculator: revenuerocket.com/valuation-calculator
Schedule a confidential conversation: [SCHEDULING LINK]
Listen on your favorite platform: [LINK]
Website: revenuerocket.com
ABOUT REVENUE ROCKET
Revenue Rocket is a sell-side and buy-side M&A advisory firm focused exclusively on IT
services companies, including MSPs, cybersecurity, cloud, custom application development,
and VARs.
MergersAndAcquisitions #ITServices #MSP #ShootTheMoon #RevenueRocket #ExitStrategy
VerticalSpecialization #HunterFarmer
Thinking about your own growth or exit? Schedule a confidential conversation.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Selling an IT services company is far more likely to close and typically sells for about 20% more when you use a specialist M&A advisor instead of going it alone. Here is what the data shows and what an advisor actually does to improve the outcome.
In this episode of Shoot the Moon, the Revenue Rocket team breaks down the real economics of IT services M&A: why most owner-led sales never close, how an advisor adds roughly 20% to the sale price, and what makes selling an MSP, cybersecurity, cloud, or software firm different.
We cover pre-market preparation, competitive tension, and today’s market including the silver tsunami of boomer-owned businesses now heading to market. If you are weighing an exit in 2027 or beyond, this is where to start.
CHAPTERS
0:00 Cold open and intro
0:35 Do you really need an advisor to sell?
3:00 What the data says: close rates and the ~20% premium
6:15 Why deals die when founders go it alone
10:45 The wrong-advisor trap
12:00 How an advisor moves the numbers
17:30 What makes IT services M&A different
23:00 Market conditions and the silver tsunami
27:00 The emotional side of selling
29:00 What founders should do right now
KEY TAKEAWAYS
• Owner-led sales close under 10% of the time; top specialists close 80% to 95%.
• An advisor adds roughly 20% to the sale price on average, with studies ranging from 6% to 25%.
• In IT services, recurring revenue and a well-distributed client base drive value.
• The silver tsunami of boomer-owned businesses—12 million firms representing $10 trillion in assets—is bringing a wave of supply to the market.
• If you are considering an exit in 2027 or later, start a conversation now—not a commitment.
LINKS
• Value your firm: https://www.revenuerocket.com/valuation-calculator/
• Schedule a confidential conversation: https://www.revenuerocket.com/contact-us/
• Listen on Apple Podcasts: https://podcasts.apple.com/us/podcast/shoot-the-moon-with-revenue-rocket/id1478519505
• Listen on Spotify: https://open.spotify.com/show/6y7u9KuOjaplhScHtINGZU
• Explore more episodes: https://www.revenuerocket.com/series/shoot-the-moon/
• Website: https://www.revenuerocket.com/
ABOUT REVENUE ROCKET
Revenue Rocket is a sell-side and buy-side M&A advisory firm focused exclusively on IT services companies, including MSPs, cybersecurity firms, cloud service providers, custom application development companies, and VARs.
For more than 25 years, Revenue Rocket has helped founders grow, position, buy, and sell tech-enabled services firms.
Thinking about an exit? Schedule a confidential conversation with our team:
https://www.revenuerocket.com/contact-us/
MergersAndAcquisitions #ITServices #MSP #ShootTheMoon #RevenueRocket #ExitStrategy #MandAAdvisor #SilverTsunami
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In IT services M&A, depending on a single platform or channel partner is a valuation risk, not a strength. This episode breaks down what happens to your firm's value when a vendor changes its pricing, partner tiers, or lead flow, and what the most acquirable IT services firms do instead.
Chapters (verify exact times against the final cut)
0:00 Cold open
0:30 Why channel partners matter, and why dependency is risky
3:30 Vendors act in their own interest first
8:00 The "$5M consultancy" problem: when the rules change overnight
11:30 Specialize or diversify? The verticalization hedge
17:30 When the leads dry up
20:00 The future partner role: final-mile and the "service garage"
23:30 "My partner program just changed": what to do first
27:30 What program changes mean for M&A and consolidation
34:00 Services as software: the opportunity ahead
In this episode
• Vendors optimize for vendors; partner programs have trended toward fewer partners and lower payouts for 20+ years
• Buyers discount single-vendor dependency the way they discount customer concentration
• Verticalized expertise naturally makes you multi-vendor and harder to disrupt
• The durable partner role is implementation, integration, and ongoing service
• Program upheaval accelerates consolidation; well-run, profitable firms stay attractive
Links
• Read more on our blog: https://www.revenuerocket.com/blog/
• What's your firm worth? Valuation calculator: https://www.revenuerocket.com/valuation-calculator/
• Schedule a confidential conversation: https://www.revenuerocket.com/contact-us/
• Listen to Shoot the Moon on your favorite platform: https://www.revenuerocket.com/podcast/
• More from Revenue Rocket: https://www.revenuerocket.com/
About Revenue Rocket — Revenue Rocket is a sell-side and buy-side M&A advisory firm focused exclusively on IT services companies, including MSPs, cybersecurity, cloud, custom application development, and VARs. For 25+ years we have helped founders grow, position, and sell their firms.
Thinking about your next move? Schedule a confidential conversation: https://www.revenuerocket.com/contact-us/
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Most first acquisition offers are not the best offers. If a buyer has approached your MSP or IT services company out of the blue, this episode walks through how to evaluate that offer, what a letter of intent actually binds you to, and why bringing in an advisor before you sign protects both your price and your optionality.
CHAPTERS
0:00 Why most first offers are not the best offer
1:45 What changed: a seller's market and nonstop inbound offers
4:45 "I already have an offer" — what an LOI really binds you to
7:00 Why the first offer usually is not optimized
10:15 Mistakes founders make running their own deal
14:50 When to bring in an M&A advisor
18:00 Deal facilitation vs. a full sell-side process
22:00 Control vs. leverage: what an advisor actually does
24:15 The first thing to do when an offer lands
26:30 Wrap-up
KEY TAKEAWAYS
- Most first offers are not optimized. Without competitive tension, you usually leave price, terms, and strategic fit on the table.
- In an LOI, the no-shop clause is typically the only binding provision. The number can still move significantly in diligence.
- There are roughly 150 things to negotiate between LOI and close, from working capital to earnout structure to reps and warranties.
- "Deal facilitation" meets you where you already are with a buyer or signed LOI, and helps you get to close at a lower scope than a full process.
- An advisor does not take control. They add leverage, while you make every final decision.
- Before you respond to any offer: don't engage emotionally, validate the buyer's credibility and certainty to close, and protect your optionality.
LINKS
- Read more on our blog: https://www.revenuerocket.com/blog/
- Estimate your company's value with our Valuation Calculator: https://www.revenuerocket.com/valuation-calculator/
- Schedule a confidential conversation: https://www.revenuerocket.com/contact-us/
- Listen on Apple Podcasts: https://podcasts.apple.com/us/podcast/shoot-the-moon-with-revenue-rocket/id1478519505
- Listen on Spotify: https://open.spotify.com/show/6y7u9KuOjaplhScHtINGZU
- More episodes: https://www.revenuerocket.com/series/shoot-the-moon/
- Website: https://www.revenuerocket.com
ABOUT REVENUE ROCKET
Revenue Rocket is a sell-side and buy-side M&A advisory firm focused exclusively on IT services companies, including MSPs, cybersecurity, cloud, custom application development, and VARs. Based in Bloomington, Minnesota, the firm has advised technology and IT services founders on mergers, acquisitions, and exits for 25+ years.Shoot the Moon is hosted by Revenue Rocket partners Mike Harvath, Ryan Barnett, and Matt Lockhart.
📞 Received an offer and not sure what it is really worth? Talk to an advisor before you respond: https://www.revenuerocket.com/contact-us/
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Your friend sold for a great multiple. PE pays more than strategics. Earnouts are a trap. Wait for the right market. You're too small to sell. Here's what's actually true.
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TIMESTAMPS
00:00 Intro
00:20 Welcome and Episode Setup
02:00 Myth 1: "My Friend Sold for X EBITDA, That's My Benchmark"
07:30 Myth 2: "PE Always Pays More" (Or "Strategics Always Win on Price")
13:00 Myth 3: "Earnouts Are a Trap"
18:30 Myth 4: "I Need to Wait for the Right Market Conditions"
24:00 Myth 5: "I'm Too Small to Sell"
28:30 The Common Thread and What to Do Instead
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LISTEN AND SUBSCRIBE
Podcast: https://www.revenuerocket.com/series/shoot-the-moon/
Website: https://www.revenuerocket.com
Talk to us: https://www.revenuerocket.com/contact-us/
LinkedIn: https://www.linkedin.com/company/revenue-rocket-consulting-group
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Revenue Rocket is the premier M&A advisor to IT services companies, helping owners in the lower middle market navigate sell-side and buy-side transactions with specialized expertise and hands-on deal management.
Shoot the Moon is their weekly podcast covering M&A strategy, valuation, and growth for IT services leaders including MSPs, cybersecurity firms, cloud providers, VARs, and digital transformation companies.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
OTHER EPISODES IN THIS SERIES:
Part 1. Knowing When It’s Time to Sell: Listen now >>
Part 2. Get Your House in Order: Listen now >>
Part 3. Valuation Drivers: Listen now >>
Part 4. What is my Take Home? Listen now >>
Part 5. It Takes a Village. Listen now >>
Part 6. The First 30 Days of a Process. Listen now >>
Part 7. Finding the Right Buyer. Listen now >>
Part 8. Deal Structures 101. Listen now >>
Part 9. Due Diligence. Listen now >>
Part 10. Definitive Agreements and the Final Stretch. Listen now >>
Part 11. What Happens After the Deal Closes. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Closing the deal is not the finish line. It is the beginning of the next chapter.
In this episode of the Seller Master Class Series, Mike, Matt, and Ryan walk through what sellers should expect after a transaction closes. They cover how to protect customer confidence, reassure employees, establish communication cadence, and prioritize the right operational changes without disrupting service delivery or cash flow.
They also discuss the founder’s transition after closing, common post-merger integration missteps, and what success looks like in the first 100 days.
What you’ll learn in this episode:
- What matters most in the first 30 days after closing
- How to communicate the transaction to employees and customers
- Why messaging and leadership alignment are critical post-close
- What operational changes should happen first and what should wait
- How founders should prepare for the emotional and practical shift after selling
- The KPIs that signal a healthy integration in the first 100 days
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Key takeaways
- The LOI is not the final deal. It is more like a handshake on price and core terms, while definitive agreements create the legally binding structure of the transaction.
- The focus shifts from headline economics to risk allocation, including representations, warranties, indemnification, escrows, working capital, and earnouts.
- Sellers should expect multiple transaction documents, including the purchase agreement, employment or transition agreements, non-compete and non-solicit provisions, disclosure schedules, and sometimes escrow or lender-related documents.
- An M&A advisor should protect deal momentum and economics, while legal counsel should focus on legal exposure. Letting attorneys drive business negotiations can create delays and unwanted tradeoffs.
- Disclosure schedules require a major lift because they support the reps and warranties in the agreement and must fully disclose contracts, employee matters, vendor agreements, litigation issues, notices of termination, and other material business details.
- Closing day is often surprisingly anticlimactic when the deal has been well managed. Most signatures are already in place, wires are released, and the team confirms final execution and funding.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
EPISODE 245.
Key Takeaways:
What due diligence is: The buyer’s inspection/audit of the seller’s business to confirm the story, financials, contracts, and assumptions made pre-LOI.
The emotional shift for sellers: Post-LOI can feel like “we’re done,” but diligence is often the most challenging phase and can be exhausting and distracting.
Why buyers do it: Risk mitigation and validation, plus identifying upside (synergies, growth investment opportunities, consolidation savings).
Common seller mistake: Underestimating diligence and showing up unprepared, both emotionally and operationally.
Role of an M&A advisor: First point of contact, ensuring data is clean/defensible, fast response cadence, and pushing back where appropriate.
“Scope creep” reality: Multiple outside parties (QoE, tax, legal, integration) often ask overlapping questions, creating a “Groundhog Day” effect without strong process management.
Top diligence areas buyers focus on: Revenue quality, customer concentration, contracts/renewals, security posture, key person risk, and scalable delivery model.
Retrade risk signals: Business performance softening during diligence, messy financials, messy contracts, or major unexpected changes in the business.
Keep momentum (they cite ~90 days as a good diligence window) and don’t let diligence distract leadership so much that performance slips.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this installment of the Sell Side Master Class, Ryan and Mike break down deal structure, the terms behind the headline enterprise value and why structure can matter as much as (or more than) price. They walk through the most common components of consideration in IT services M&A: cash at close, earnouts, seller notes, and rollover equity, including where each can create upside and where hidden risk lives. Mike explains why earnouts often get an unfair reputation, what “good” earnout design looks like, and why indexing to revenue is typically safer than profit. They also cover how seller notes work (and why they’re subordinated to bank debt), what rollover equity really means in a PE-backed deal, and the “often missed” lever of working capital, including how sellers can accidentally leave money on the table without the right guidance. Tune in as we talk Deal Structures 101.
DEAL STRUCTURES WE DISCUSS:
Cash at close: The portion of the purchase price you receive when the deal closes. In the episode, this is framed as the most straightforward form of consideration and the “baseline” sellers compare other components against.
Earnout: A contingent payment you can earn after closing if the business hits agreed performance targets. Mike explains that earnouts often work best when they’re indexed higher on the P&L (commonly revenue, sometimes gross margin) and structured with a “lane” or prorated payout range instead of an all-or-nothing cliff. Example from the episode’s concept: if revenue lands within a defined band around the forecast, you receive a proportional earnout payout.
Seller note: Seller financing where the seller effectively becomes a lender to the buyer for part of the purchase price. The transcript describes this as the seller “acting like the bank,” typically with interest, and notes that it is usually subordinated to senior bank debt. Example conceptually: you receive part of the price over time as principal plus interest rather than all at close.
Rollover equity: The seller reinvests a portion of proceeds into the new ownership structure, keeping equity in the business post-transaction. In the episode, this is discussed as the “second bite of the apple,” often seen in PE-backed deals where the seller participates in future upside at a later liquidity event.
Working capital adjustment: A structural mechanism that sets a working capital “target” at close and adjusts the seller’s proceeds up or down depending on whether the company delivers more or less working capital than agreed. The transcript emphasizes this as an often-overlooked lever and discusses that many owners are overcapitalized, meaning working capital can meaningfully impact what the seller takes home if negotiated correctly.
Mixing structures to optimize EV and share risk: The episode repeatedly frames structure as a way to balance risk between buyer and seller and sometimes increase headline enterprise value. Example concept: a buyer may offer a higher total value if some portion is contingent (earnout) or deferred (seller note) versus paying the entire amount in cash at close.
OTHER EPISODES IN THIS SERIES:
Part 1. Knowing When It’s Time to Sell: Listen now >>
Part 2. Get Your House in Order: Listen now >>
Part 3. Valuation Drivers: Listen now >>
Part 4. What is my Take Home? Listen now >>
Part 5. It Takes a Village. Listen now >>
Part 6. The First 30 Days of a Process. Listen now >>
Part 7. Finding the Right Buyer. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Other Episodes in this Series
Part 1. Knowing When It’s Time to Sell: Listen now >>
Part 2. Get Your House in Order: Listen now >>
Part 3. Valuation Drivers: Listen now >>
Part 4. What is my Take Home? Listen now >>
Part 5. It Takes a Village. Listen now >>
Part 6. The First 30 Days of a Process. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
What does it really feel like when you decide to sell and the process officially begins?
In this Sell-Side Master Class episode, we walk through month zero and the first 30 days of a sell-side process: the pre-market foundation, the time commitment, and the “transfer” that has to happen so an advisor can speak like they’re part of your team. We cover the core information you’ll be asked to assemble (financials, customer data, employee data, forecasting, go-to-market materials), plus the practical reality that founders often need to keep the circle tight to avoid data leakage internally.
We also explain the role of the three key documents that drive early-stage buyer movement:
Teaser (anonymous, broad interest)
Confidential Information Memorandum (CIM) (post-NDA, full story)
Financial packet / data room (deeper dive, typically after qualification)
Finally, we talk through a critical leadership question that often evolves during the process: are you selling in or selling out? And we close with a simple reminder: preparation equals leverage because speed and clarity protect value.
Other Episodes in this Series
Part 1. Knowing When It’s Time to Sell: Listen now >>
Part 2. Get Your House in Order: Listen now >>
Part 3. Valuation Drivers: Listen now >>
Part 4. What is my Take Home? Listen now >>
Part 5. It Takes a Village. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Key takeaways Start building your advisor relationships 6–12 months pre-exit—waiting until LOI puts the close at risk (“time kills all deals”). * Your M&A advisor is the quarterback: runs the process, manages buyer psychology, protects your time, and helps prevent value leakage and retrades. * Advisor red flags: guaranteed above-market multiples, vague deliverables, weak references, and “exclusive” lockups that pay them no matter what. * Use an experienced M&A attorney (not a generalist) who understands negotiation tradeoffs—over-lawyering can derail otherwise good deals. * Tax + financial hygiene* matter: get clean, diligence-ready financials and understand structure implications; a QoE may not be required if you’re already well-prepared.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
What we cover Enterprise value vs. net proceeds: why the headline number isn’t the check you cash * The biggest “below-the-line” items that reduce proceeds: * Taxes (often the largest bite) * Debt payoff in cash-free, debt-free deals * Working capital targets and true-ups * Professional fees (M&A, legal, tax, accounting/QoE) * Timing vs. reduction: how escrow/holdbacks and seller notes can delay (not always reduce) proceeds * Reps & warranties: why buyers want protection, and the two common ways to structure it (escrow vs. RWI) * QoE + diligence: how add-backs get challenged, how deals get “retraded,” and how to defend your EBITDA * The recurring theme: start early*—prep with M&A, tax, and legal advisors before you’re in a live deal
Listener takeawayIf you want confidence in your outcome, don’t just ask “What’s my valuation?” Ask “What’s my take-home, when do I receive it, and what could reduce it?”
Other Episodes in this Series
- Episode 1: Knowing When It Is Time to Sell. Listen now >>
- Episode 2: Get Your House in Order. Listen now >>
- Episode 3: Valuation Drivers. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
What Your Business Is Worth: Valuation Drivers for Tech-Services Firms
- Valuation vs. EBITDA multiple: why they’re not the same thing
- Buyers price future performance and confidence in future cash flows
- Revenue quality premiums/discounts: recurring/contracted revenue, churn, concentration
- Adjusted EBITDA + add-backs: what’s “clean” vs. what gets rejected
- Specialization + growth consistency: vertical expertise can drive premiums
- Valuation killers: messy books, contracts, founder dependency
- How to increase value in 1–2 years: positioning (incl. AI), revenue quality, leadership/operating model
The Sell Side Masterclass for Tech Services Founders Series:
Part 1. Knowing When It’s Time to Sell: Listen now >>
Part 2. Get Your House in Order: Listen now >>
Our Podcast playlist for Sellers: https://www.revenuerocket.com/podcast-episodes-for-sellers/
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this Seller Master Class episode, the team digs into readiness: the unsexy work that makes or breaks your deal.
Last time, they explored the decision to sell. This week is all about getting your house in order so buyers can move quickly and confidently through diligence.
We cover why “time kills all deals” and how the vibrancy or cadence of a deal is driven by how fast you can deliver clean, accurate information.
Financial readiness basics:
- Clean P&L with defensible add-backs and clear, normalized EBITDA
- Moving from cash to accrual accounting and resolving open issues
- Understanding your revenue mix (recurring vs. one-time vs. resale, deferred revenue)
- Showing consistency over years, not just months
People & leadership readiness:
- Reducing over-dependence on the founder across sales, operations, and delivery
- Demonstrating a leadership team that can scale and execute
- Succession planning — including “who’s in the tent” during a transaction
- Using data (e.g., sales leadership forecasting growth from customer intimacy) to prove leadership impact
Operational readiness:
- Tool stack hygiene, systems that actually work, and useful dashboards
- PSA/ticketing discipline and clarity on what makes up your gross margin
- Transferable contracts with clean renewal and termination language
- Customer satisfaction metrics buyers will want to see
Customer & contract hygiene:
- Clear target market and GTM strategy (vertical, size, geography, problem-based, etc.)
- Demonstrating long-term, renewing, high-intimacy customer relationships
- Making sure contracts and your chart of accounts tell the same story buyers see in the data
Legal and compliance housekeeping:
- Corporate and regulatory filings (e.g., secretary of state docs, LLC details)
- Clean cap table
- Fixing misclassified contractors, missing signatures, and expired MSAs before diligence
If you only have 90 days to get ready:
- Prioritize financial readiness and third-party-vetted numbers
- Tighten up contracts and leadership accountability (“who’s who in the zoo”)
- Start building a data room with financial, contract, and operational data buyers will expect to see
Tying it together with strategy:
How “selling in” vs. “selling out” ties to your readiness story
Showing that your differentiation, GTM, and organization are well thought out — and executable with or without the founder in the seat
This episode is perfect for:
Founders and leaders of IT services and MSP firms who see an exit on the horizon and want to avoid value-eroding surprises in diligence.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In This Episode:
- Why deciding to sell your business is one of the hardest calls a founder makes
- Emotional factors behind the decision — purpose, identity, and timing
- Early “readiness signals” and how to spot them
- The difference between selling out vs. selling in
- The “Sunday Test” and “Three-Year Test” how to self-assess your motivation
- The importance of alignment at home before you make the decision
- Low-stakes steps to start preparing today: valuation, readiness checks, and building your advisory team
Key Takeaways:
- Selling isn’t quitting: it’s moving to the next chapter.
- If you’re dreading Monday, it may be time to sell out.
- If you’re energized about new growth, selling in might be the better path.
- Confidence, alignment, and preparation are the foundation of M&A readiness.
- A trusted advisor helps you navigate both the emotional and financial journey.
Related Episodes:
- Episode 235: Tell Tale Signs it is Time for an Exit. Listen now >>
- Episode 222: Seller Readiness: What to Do When a Buyer Comes Knocking. Listen now >>
- Episode 214: When to Sell Employees you are Selling the Business. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this episode, Matt and Ryan break down the concept of “selling in” - partnering with growth capital to scale your IT services business - versus “selling out.” They explore how founder-led companies can leverage private equity or family office investments to unlock their next stage of growth without giving up control or purpose. From the second bite of the apple to choosing the right platform partner, they share insights on when, why, and how to align ambition with the right capital.
Key Takeaways:
- The difference between selling in and selling out
- What “growth capital” really means in today’s IT services M&A market
- The second bite of the apple — and why it often pays more than the first
- How to evaluate investors and cultural fit before taking on a partner
- When not to take capital — knowing when your organic growth still works
Quote:
“Oftentimes people make more money in the second bite of the apple than they did the first.” — Matt Lockhart
Listen if you’re:
- A founder wondering how to scale past your current ceiling
- Curious about private equity partnerships in IT services
- Debating between continuing solo or joining a platform
RELATED EPISODES:
Episode 233: Grow, Buy, or Sell to Grow. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Episode 235: What we cover
- Personal vs. company readiness: passion, energy, and risk appetite
- Scale ceilings: when you need more talent, capital, or partners
- “Wearing every hat”: the founder role that’s become unsustainable
- Market timing vs. company health (multiples vs. demand)
- External shifts (e.g., AI) that change the calculus
- Tired vs. done: tests to gain clarity (distance, peers, spouse)
- Life after close: purpose > plan, and why that matters
- Age, seasons, and the cost of waiting too long
RELATED EPISODES:
Episode 234: Deal Urgency in Q4: How to Close (or not close) Before Year-End. Listen now >>
Seller Readiness: What To Do When a Buyer Comes Knocking. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Show Notes Why Q4 creates natural urgency: capital deployment, tax timing, clean year-end cutover, and internal fund deadlines. * Realistic timelines: ~90 days from LOI to close (60 if exceptionally well-planned and resourced). * How to avoid year-end derailers: risk-based diligence, weekly cadence, the “it takes a village” resourcing mindset. * Practical prep checklist: books buttoned up, pre-diligence, a single project plan with stage gates, industry-savvy QofE team, and agile communication (not waterfall ticket-ping-pong). * Holiday calendar tactics: set stage-gate deadlines with buffer before Thanksgiving and other outages. * When to push to January: tax strategy, team fatigue, culture/relationship health, and any material renegotiation that resets the clock. * Pro tip: use Q4 to prepare* even if you won’t close—calibrate valuation, market timing, and build the 2026 plan with advisors.
Thinking about closing in Q4, or setting up a smart January start? Revenue Rocket has led hundreds of IT services deals. If you want a realistic path to close, a risk-based diligence plan, or a sanity check on timelines, let’s talk.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this episode, the team breaks down the decision every IT services leader wrestles with: Grow, Buy, or Grow to Sell. You’ll hear where firms typically hit operational ceilings, why acquisitions amplify your go-to-market (for better or worse), and what it takes to be truly “ready to sell.” We cover the cash and capability requirements behind each path, common traps (buying to fix sales, serial deals without integration, ignoring working capital), and a simple framework to choose based on time horizon, risk tolerance, and valuation goals. Whether you’re building toward a premium exit or debating your next add-on, you’ll walk away with practical steps to drive multiple expansion now.
Three paths, three realities
Grow (organic): sharpen ICP, offers, pricing power, utilization, and pipeline discipline.
Buy (inorganic): clear thesis, cultural fit, day-0/30/90 integration plan, and post-close GTM.
Grow to sell: clean financials/QofE-ready, recurring mix, concentration reduction, leadership bench.
Decision drivers: time horizon, leadership bandwidth, cost of capital, integration capacity, risk profile.
Valuation levers: recurring revenue %, margin quality, growth durability (Rule of 40/45), customer concentration, integration track record.
Common pitfalls: buying to “fix” sales, underestimating change management and working capital, skipping playbooks.
Playbooks that travel: discovery→close process, delivery runbook, ICP x offer matrix, integration day-0/30/90, KPI cadence.
Outcome framing: optionality done right = two good outcomes (keep growing or transact at a premium).
Thinking about building, buying, or prepping for exit? Revenue Rocket has led hundreds of IT services transactions and integrations. If you’re weighing the path (or want a sanity check on the math) let’s talk: info@revenuerocket.com
KEY TAKEAWAYS
Acquisitions magnify GTM—they don’t fix it.
Operational maturity decides whether you stall at ceilings or scale past them.
If premium exit is the goal, optimize recurring mix, margins, and concentration now.
Model post-close working capital and integration costs, not just purchase price.
“Grow to sell” is a discipline game: clean books, durable pipeline, and leadership redundancy.
RELATED EPISODES
Questions to Ask before you Consider an M&A initiative. Listen now >>
All Roads Lead to M&A. Listen now >>
Episode 90: Selling in vs Selling Out. Listen now >>
Episode XX: Rule of 45. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Lockboxes promise price certainty—but the clock can quietly shift value. In this episode, Mike and Ryan break down how a lockbox differs from a classic cash-free/debt-free (CF/DF) deal: fixed price as of a “lockbox date,” no post-close true-up, and a tight definition of permitted vs. non-permitted leakage. They discuss when lockboxes shine (fast closings, cleaner accounting, fewer surprises) and where sellers need to be careful (growth between lockbox date and close often accrues to the buyer). You’ll get apples-to-apples comparison tips for evaluating offers, what to watch in tax escrows, and a practical way to translate excess working capital into headline price. If you’ve ever wrestled with working capital adjustments or wanted a cleaner close, this one’s your field guide.
Seller checklist:
- Nail down the lockbox date and permitted leakage list.
- Quantify excess working capital and reflect it in price.
- Set a close timeline—faster is safer for sellers.
- Align on tax items and escrow triggers.
- Ensure every CF/DF vs. lockbox offer is compared on the same basis.
RELATED EPISODES:
Episode 154: What will be your take home portion of the deal? Listen now >>
Episode 123: Understanding Cash Free Debt Free in M&A Transactions. Listen now >>
Episode 100: Looking back at 100 Episodes and Narrowing in on Working Capital. Listen now >>
Episode 94: Navigating Undisclosed Liabilities Before, During, and After Close. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
02:39 — What is EBITDA multiple arbitrage (plain-English walk-through)
03:39 — Why smaller firms trade lower and platforms trade higher (the math)
07:50 — Beyond size: capabilities, service lines, and moving up the value chain
11:49 — Rolling equity 101: the “second bite” and a typical 70/30 construct (example)
15:03 — Risks sellers must vet: culture, strategy, dilution, and capital stack terms
19:56 — Integration that creates real accretion (when 1+1=3…or more) + “velocity matters”
23:46 — Is there a cap? Where arbitrage gains flatten as platforms scale up
27:55 — Can strategics do this without PE? Funding paths and “smart money” mindset
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Key takeawaysAdvisors vs. Banks = different centers of gravity. Banks are great for IPOs, raises, and complex financings; advisors excel at sector-specific sell-side processes.
In IT Services, specialization matters. Operator experience helps craft story, vet culture, and identify “1+1=3” combinations.
Lead with strategic + cultural fit. If those are right, the financials usually find a path.
Staffing models differ. Expect partner-level guidance throughout with advisors; banks skew analyst-heavy.
Start early. Long-tail readiness work (growth, margins, positioning) boosts value and certainty when the market moment arrives
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
💡 Why This Topic?
- Nearly every buyer call this week hit on vertical strategy
- PE firms are framing investment theses around industry-specific plays
- Strategics are scaling via vertical bolt-ons
- Operators who niche down are getting stronger multiples and clearer GTM motion
Emerging Themes from Revenue Rocket this Week
- Buyers want relationships, workflows, and niche dominance — not just EBITDA
- Vertical specialization solves distribution problems
- SaaS-like economics in vertical plays are commanding premium multiples
- Cultural alignment is easier when firms live in the same industry world
Related Episodes:
Episode 210: What Should My Company look like to Command a Premium Offer. Listen now >>
Episode 173: Why is selling a Business so Hard? Listen now >>
Episode 145: Why Sellers with Vertical Market Approaches Earn Premium Valuations. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Episode Notes:
- The podcast episode features Kevin Lancaster, CEO of Channel Program, as a special guest.
- The discussion centers on the Channel Program platform, including its tools like Navistack, which helps MSPs visualize their technology stack, manage contracts, and integrate financial data.
- Kevin shares insights from the vast amount of data collected by Channel Program, highlighting the significant number of product categories and tools MSPs use.
- A major theme is the rapid evolution and impact of AI on the MSP industry, discussing how it's increasing margins through automation but also leading to commoditization.
- The conversation also covers the importance for MSPs to differentiate themselves by providing business value beyond traditional IT services and how AI is influencing the M&A landscape in the sector.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Notes (Highlights)Seller Hesitation: Common due to identity tied to business, timing doubts, and emotional strain.
Preparation Stage: Proper financial, marketing, and buyer prep helps set realistic expectations.
Valuation Shock: Sellers often question decisions after seeing valuation numbers—advisors help manage expectations.
Diligence Process: Demanding, sometimes invasive; advisors keep momentum, filter excessive requests, and provide clarity.
Definitive Agreement: Overwhelming but manageable if focus stays on critical deal terms (e.g., reps & warranties).
Final Stretch Fatigue: Negotiations often leave both sides slightly dissatisfied—a sign of balance in deal-making.
Advisor Role: Part deal-maker, part counselor, part “bartender” listening ear; critical in sustaining motivation.
Managing Fear of Unknown: Build certainty through qualified buyers, realistic valuations, and clear legal terms.
Wellness Tip: Sellers should take breaks (vacations, weekends) post-LOI to recharge and avoid burnout.
Outcome Vision: Keep focus on strategic fit, cultural alignment, and long-term financial reward.
RELATED EPISODES:
Episode 219: Seller Readiness: What To Do When a Buyer Comes Knocking. Listen now >>
Episode 217: How to Keep a Level Head During an M&A Process. Listen now >>
Episode 201: Restarting the M&A Journey: Strategies for Sellers After a Failed Combination. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
EPISODE 226. This episode begins with the vocal stylings of Ashley Battel from the Revenue Rocket Outreach team.
EPISODE NOTES:
• Customer concentration in IT‑services M&A is it a hero or risk?
• Concentrations of 20–50%+ revenue across 1–5 anchor clients are common.
• Evaluate revenue/profit trajectory, contract history, and relationship depth to size risk.
• Strategic buyers often welcome concentration for cross‑sell upside; financial buyers discount or structure.
• Deal mechanisms (earn‑outs, hold‑backs, gain‑share “circuit breakers”) protect all parties if the key client churns.
• Valuation impact: risk is typically offset with structure rather than outright price cuts.
• Pre‑sale de‑risking: broaden touchpoints, add contract vehicles, and build succession around the anchor client.
• Diversification upside: the right acquirer may reduce their own concentration and grow wallet share.
• Bottom line: understand the full picture, concentration can fuel growth instead of derailing deals.
RELATED EPISODES:
- Episode 210: What Should My Company look like to Command a Premium Offer. Listen now >>
- Episode 186: Dealing with Customer Concentration when Selling your Business. Listen now >>
- Episode 182: Prioritizing Marketing in Tech Services Firms feat. Mark Coronna. Listen now >>
- Episode 170: How to Become a Platform Investment. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
“The fastest-growing firms marry organic excellence with a disciplined, outsourced M&A engine.” — Mike
I. Warm-Up: The CEO Mindset
Q1. Mike, what are some of the most common reasons CEOs in IT services think about buying another company?
Q2. When should a CEO not consider buying? When is it too early or misaligned with the company’s strategy?
Q3. What are some signs a firm is ready to start looking for acquisitions?
II. Why Engage a Buy-Side Firm at All?Q4. So let’s get into it: why hire a buy-side advisor like Revenue Rocket instead of just sourcing deals yourself? What’s the real value?
Q5. What are the risks of going it alone? Can you talk about deal fatigue, overpaying, or getting stuck in a bad fit?
Q6. Some CEOs think they know their market well enough to hunt alone. What’s your response to the “we’ve got it covered” argument?
Q7. We often say we’re not bankers, we’re operators. How does Revenue Rocket’s buy-side work differ from traditional investment banking?
III. Timing and Engagement StrategyQ8. When is the right time to engage a buy-side firm—before or after you’ve identified a target?
Q9. How long does a typical buy-side process take—from kickoff to LOI to close?
Q10. What should a buyer come to the table with? What homework should they do before engaging an advisor?
IV. Results, Metrics, and MistakesQ11. What makes a buy-side project successful? What metrics or signals tell you it’s working?
Q12. What are the biggest mistakes buyers make—even with an advisor in place?
Q13. Talk about deal volume vs. deal quality. How do we balance sourcing a lot of targets with getting the right ones?
V. Case Study and Wrap-UpQ14. Mike, can you share a story—no names needed—where hiring us as a buy-side advisor turned a good idea into a great outcome?
Q15. For the CEO listening who’s on the fence—what’s your final argument for why now might be the time to engage a buy-side partner?
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
| Time | Topic / Segment | Key Takeaways | | --- | --- | --- | | 0:00 | Welcome & July-4th setup | Why founders start thinking about “life after the sale” over holiday downtime | | 1:30 | Sell-In vs Sell-Out 101 | Minority recap = keep equity & help scale; full sale = plan your next move now | | 4:45 | Identity shift after selling-in | Accept you’re “not the final veto” and learn to lead through others | | 8:00 | Culture makes or breaks integrations | Revenue Rocket’s culture-scoring rubric and red-flag examples | | 12:50 | Planning the personal side | Take real think-time, schedule a post-close celebration, and set fresh goals | | 16:40 | Earn-outs & risk management | 86 %+ of well-structured earn-outs pay—stay involved to land them | | 21:20 | “Project Neptune” case study | 180 buyers → 60 NDAs → 12 IOIs → one ideal partner; why a full process matters | | 27:30 | Bridging valuation gaps | Education, comps, and competition beat wish-list multiples | | 29:45 | Life after the wire | New opportunities, family-office dreams, or a fresh start—just have a plan | | 33:00 | Final advice | Find an advisor whose depth, track-record, and personality align with yours |
Actionable Nuggets
Draft two roadmaps: a 90-day integration game-plan and a personal “what’s next” list.
Pressure-test cultural alignment early—values mismatches cost more than deal points.
Treat the earn-out like your new bonus plan: stay plugged in or negotiate influence levers.
Celebrate intentionally: marking the exit helps you mentally close one chapter and open another.
Use these insights to ensure your own exit isn’t just a payout, but the prologue to an even bigger success story.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
There is nothing that is without risk! In this episode we are diving into the big risks (and rewards) that come with working an M&A process. M&A always feels like a bet. Hosts Mike Harvath, Matt Lockhart & Ryan Barnett explain how top-quartile IT-services firms stack the odds:
• quantify risk, then plan for success—not failure
• engineer deal structures (earn-outs, equity rolls) that protect both sides
• keep culture-integration front & center
• why buying customers can beat marketing for them
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
EPISODE NOTES:
Who’s Who in the Final Month:
Understand the large cast of characters involved including M&A advisors, legal teams, tax consultants, buyers, funders, and integration leaders.
Legal Complexities:
Tips for selecting the right M&A-savvy lawyer and the importance of legal transparency and communication throughout the process.
Communicating with Employees:
The Goldilocks approach—don’t tell your team too early or too late. Clear and timely communication is key to trust and retention.
Working Capital Battles:
Real-world guidance on how to calculate and negotiate appropriate working capital levels—usually a sticking point in deals.
Funding & Closing Mechanics:
Breakdown of how deal day works, from signature escrow to wire transfers and Federal Reserve delays. Plus, what makes a deal truly closed.
Press & PR Planning:
Don’t forget the importance of coordinating press releases and internal communications for maximum positive impact.
Final Advice:
Preparation and the right team of advisors can make the final 30 days less stressful and more successful. Trust and communication win the day.
RELATED EPISODES
Episode 214: When to Tell Employees you are Selling the Business. Listen now >>
Episode 192: What to Expect the Last Week before Close. Listen now >>
Episode 100: Looking back at 100 Episodes and Narrowing in on Working Capital. Listen now >>
Episode 83: The 11th Hour. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Key Topics Covered:Intro to Project Neptune – A high-growth, high-margin MSP built by a husband-and-wife team.
Why Sell? – The founders sought scale, not an exit. They wanted to join a larger platform.
The Process – Revenue Rocket led packaging, marketing, and diligence with 180+ buyer targets and 12+ indications of interest.
Deal Structure – Final deal included cash at close, equity roll, and a minor earnout.
Valuation Expectations – Reality vs. wishful thinking and how credible advisors help bridge the gap.
Lessons Learned – Managing bumps in the road (e.g., buyer-side delays), and keeping the seller focused on growth.
Takeaways:Not every sale is a full exit—“selling in” can unlock long-term growth.
A structured process with a wide buyer pool yields better results than reacting to unsolicited offers.
Great deals require great preparation: clean financials, clear strategy, and trusted advisors.
Flexibility in deal structure is key—enterprise value is only part of the picture.
The right advisor will do the heavy lifting so founders can keep running the business.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
🎙️ 1. What’s the real purpose of a non-compete clause in an M&A deal?
- Why it’s important:
Sets the stage — you’re establishing that these aren’t just “standard boilerplate,” but real tools for protecting the buyer’s investment. It also shows that you get why buyers insist on them.
🎙️ 2. How long and how broad should a typical non-compete be in IT services M&A?
- Why it’s important:
Matt can share “market standard” ranges for duration (1–3 years? 5 years?) and scope (regional vs. national vs. global). It’s a super practical question that your audience will care about — they’re probably Googling it right now!
🎙️ 3. What’s the difference between a non-compete and a non-solicit clause?
- Why it’s important:
Many sellers (and even some buyers) confuse the two. This question lets Matt explain how they overlap and where they differ — adding clarity for your listeners.
🎙️ 4. Are non-competes really enforceable? Or do some states or countries treat them as worthless?
- Why it’s important:
There’s a lot of confusion (and myth!) around whether these are even enforceable. It’s a chance to cut through the noise and talk about how jurisdiction and real-world enforcement actually play out in deals.
🎙️ 5. What’s the risk of agreeing to a non-compete that’s too broad?
- Why it’s important:
Sellers need to know that signing an overly broad non-compete can kill their ability to start a new business down the road. This question lets Matt highlight the hidden risks and why careful negotiation matters.
🎙️ 6. How can sellers negotiate a more balanced non-compete clause?
- Why it’s important:
This makes it practical — Matt can share tactics or language that can help sellers carve out reasonable carve-outs, narrow the scope, or tie the clause to actual buyer concerns (not just blanket restrictions).
🎙️ 7. What’s one of the biggest mistakes you see sellers make when reviewing these clauses?
- Why it’s important:
A “closing” question that lets Matt share a cautionary tale or real-life example — which always resonates with listeners and makes the advice sticky.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this episode of Shoot the Moon, Ryan Barnett and Matt Lockhart explore a common scenario: a business owner receives a call from a potential buyer—or from an M&A advisor representing one—and suddenly faces a big question: Am I actually ready to sell?
Whether you're planning a structured go-to-market process or simply responding to inbound interest, readiness matters. This episode breaks down what it means to be “seller ready,” why preparation is a competitive advantage, and how to stay in control of the process—regardless of who picks up the phone first.
We’ll cover:
- Why taking a buyer call doesn’t mean you’re committing to a sale
- The pros and cons of one-off conversations vs. full processes
- What a real M&A readiness plan looks like—and why it adds value
- How to manage buyer interest while keeping your options open
This episode is a must-listen for IT services firm owners who aren’t sure if they’re ready to sell—but want to be ready when the right opportunity strikes.
RELATED EPISODES:
Episode 92: Why You Should Take the Call from an M&A Advisor. Listen now >>
Episode 177: Fielding an Inbound Call from a Suitor. Listen now >>
ARE YOU READY TO SELL? QUESTIONS TO KNOW THE ANSWERS TOO. DOWNLOAD OUR EBOOK >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
1. “How do you like to qualify whether a buyer actually has the capital to close a deal?”
- Gut check vs. formal proof
- Differences between PE-backed and strategic buyers
- What’s reasonable to ask for and when in the process
2. “What are some of the best ways a buyer can demonstrate proof of funds early in a process?”
- Equity commitment letters
- Bank letters or balance sheets
- Fund-level detail for PE buyers
- Is a LOI ever enough?
3. “When you see a buyer lean heavily on an earnout or seller note, what does that tell you about their financial strength?”
- Earnouts as risk-transfer vs. alignment tool
- Sign of limited capital vs. aggressive valuation
- How to structure a seller note to reduce risk
4. “Have you ever had a deal fall apart because the buyer couldn’t come up with the money?”
- Anecdotes of broken deals or red flags missed
- What should have been asked earlier
- Lessons learned about screening buyers
5. “What questions should sellers be asking to vet a buyer’s financial capacity?”
- Go-to questions to ask PE firms, family offices, strategics
- What not to ask (or how not to ask it)
- How advisors help behind the scenes to validate
6. “If a seller gets an offer that looks strong on paper — big multiple, big earnout — what’s your advice for validating it’s real?”
- The danger of being ‘seduced by the headline multiple’
- Discounting for deal structure risk
- How to tie offer strength to real-world execution ability
7. “Are there particular red flags you see when a buyer isn’t financially credible?”
- Delayed diligence or ghosting
- Lack of transparency around capital source
- Too many approvals needed — unclear decision-makers
- Offers contingent on future fundraising
8. “What’s the advisor’s role in protecting the seller from wasting time with unqualified buyers?”
- Quietly vetting buyers behind the scenes
- Managing buyer engagement based on credibility
- Pulling in references or past deal history
9. “What’s your take on PE firms that haven’t yet closed a platform in the space — does that change how we qualify them?”
- Platform vs. add-on credibility
- Operational readiness of first-time buyers
- Importance of fund age and deployment schedule
10. “At what point in the process do you think it's fair for a seller to ask for hard financial evidence?”
- Pre-LOI vs. post-LOI
- How to handle it without offending
- When to walk if transparency isn’t there
RELATED EPISODES
Episode 203: Selling Your Business to an Independent Sponsor. Listen now >>
Episode 113: Deal Financing- Scenarios, Options and Implications for Both Sides. Listen now >>
Episode 97: Understanding Search Funds as an IT Services Seller. Listen now >>
Episode 99: IT Services Sellers: Evaluating the Size of a Buyer. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Selling your business is more than a financial transaction—it's an emotional journey. Our latest podcast explores the critical balance between emotion and logic in mergers and acquisitions, offering insights for IT services business owners. Key Takeaways:
- Understand the deep emotional attachment founders have to their businesses
- Recognize how emotions can impact deal negotiations and valuation
- Learn strategies to stay level-headed during the M&A process
- Discover the importance of professional advisors in managing emotional challenges
Whether you're considering selling or acquiring a company, emotional intelligence is your greatest asset. Our experts provide practical guidance to help you navigate the complex world of business transactions with confidence and clarity. Want to transform your M&A experience? Listen to our full podcast and gain expert insights into successful business transitions or reach out to schedule a no obligation introduction call: info@revenuerocket.com
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this episode of Shoot the Moon, the Revenue Rocket team—Ryan Barnett, Mike Harvath, and Matt Lockhart—unpacks a foundational concept in IT services M&A deals: EBITDA add-backs. Whether you run a Managed Service Provider, a Microsoft or SAP channel partner firm, a cybersecurity practice, or a custom development shop, understanding what qualifies as a legitimate add-back can significantly affect your valuation in a transaction.
The team covers the good, the bad, and the ridiculous—breaking down why aggressive or misguided add-backs can backfire and erode trust with a buyer. They also explore how recurring bonus plans, inflated owner salaries, and "strategic" spend are treated when it’s time to negotiate your exit.
This episode is a must-listen if you're:
- Considering a sale or recapitalization in the next 12–36 months
- Wanting to improve your EBITDA story before going to market
- Wondering if that golf membership you expensed is helping or hurting your exit
Key topics include:
- The golden rule: “Add it back only if it’s truly gone—for good”
- Owner salary treatment (especially if you stay on post-sale)
- Bonuses, personal expenses, legal fees, and other gray zones
- Buyer synergies vs. seller add-backs—don’t confuse the two
- Real-world examples of questionable add-backs (boats, jets, services and all)
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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In this episode of Shoot the Moon, Revenue Rocket’s Mike Harvath, Matt Lockhart, and Ryan Barnett explore one of the most overlooked tension points in M&A: the financial document request.
You’ve nailed the strategic and cultural fit — but when it comes time to share financials, things stall. Why? It often boils down to trust, financial hygiene, and timing.
🔍 Inside the episode:
- Why jumping to the P&L too soon can kill momentum
- What “financial hygiene” actually means — and why it matters
- Tips for buyers to build trust and earn the right to request numbers
- What sellers should prepare: 3 years of P&L, balance sheet, forecast, and ad backs
- How to keep a deal moving when financials are messy or delayed
If you’re buying or selling an IT services firm, this episode is a playbook for avoiding early missteps and setting up a smoother path to due diligence.
RELATED EPISODES:
Episode 170: How to Become a Platform Investment. Listen now >>
Episode 141: Add-Backs 101. Listen now >>
Episode 131: The Importance for Sellers to have Financials in Order while being Acquired. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
EPISODE KEY POINTS
- Communicating a Business Sale to Employees
- Key Stakeholders and Early Communication
- Selling In vs. Selling Out
- Employee Concerns and Communication Strategies
- Follow-Up Communication and Integration Plan
- Overall Communication Plan
RELATED EPISODES
Episode 96. Post Combination Employee Consolidation: Do’s, Don’ts and What to Expect. Listen now >>
Episode 33. Employee Involvement: Who and When during a Buy Process. Listen now >>
Episode 32. Employee Involvement during the Sale of your Business. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this episode of the Shoot the Moon podcast, Matt Lockhart and Ryan Barnett discuss the key questions buyers ask when considering acquiring an IT services firm. The discussion provides insights for IT services business owners preparing for a potential sale, emphasizing the importance of being prepared, transparent, and able to clearly articulate the company's value proposition and growth potential. They cover critical areas including:
Strategic fit: how does this acquisition fit into the buyers service offerings? does it compliment it, fill gaps, or extend service offerings? making the buyer more valuable? market expansion?
- revenue model
- geography
- customer concentration
- how you have grown
Profitability
Flexibility on deal structure
Synergies in Processes / Platforms: What tools are in place to deliverables? Back office, front office, CRM etc...
Having financials in order: do you know your revenue, profit, margins? Tip: Having confidence in the number for the potential buyer
Leadership & Retention post-transaction: What is the seller looking for?
Go-to-Market Strategy: Assessing sales, marketing, and customer acquisition approaches
RELATED EPISODES:
- Episode 186: Dealing with Customer Concentration when Selling your Business. Listen now >>
- Episode 170: How to Become a Platform Investment. Listen now >>
- Episode 148: 6 Things that could be Surprises to Sellers. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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Rolling equity involves sellers retaining a portion of their equity in a new company structure, often used by private equity firms for future exits. Retaining equity, on the other hand, means sellers keep a stake in their original business, maintaining operational control and potentially sharing services with a broader consortium. Both options have risks and rewards, and the choice depends on the seller's goals, the strength of the buying firm, and the strategic fit. Tune in as we talk through both options.
Here is an example of one of our clients that represented a deal with rolling equity. Learn more about Project Black Sparrow >>
RELATED EPISODES:
Episode 196: Breaking Down the Successful Sale of a $19M MSP. Listen now >>
Episode 184: How Cultural Fit Drives Successful M&A. Listen now >>
Episode 170: How to Become a Platform Investment. Listen now >>
Episode 150: Overview of Rolling Equity in an M&A Transaction for a Seller. Listen now >>
Episode 112: Why Culture Matters in Tech Focused M&A Feat. Chelsey Nord. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Mike Harvath, Matt Lockhart, and Ryan Barnett discuss the process of renegotiating deals after a Letter of Intent (LOI) has been signed. They explain that while an LOI is non-binding, it sets the stage for final agreements. Changes in business conditions or due diligence findings can necessitate renegotiation. Key factors include changes in profitability, lost or gained contracts, and discrepancies in EBITDA calculations.
Key points in this episode:
- When to Renegotiate the LOI
- Binding and Non-Binding Terms in an LOI
- Role of Advisors in Renegotiations
- Legal and Contractual Considerations
- & more
RELATED EPISODES
- Episode 158: Between the LOI and Deal Close, What Should you Expect? Listen now >>
- Episode 105: Pre LOI and Post LOI Information Requests. Listen now >>
- Episode 104: Honoring the LOI: When to Consider a Re-Trade. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
The podcast discusses how tech-enabled services companies can secure premium offers during mergers and acquisitions. Key insights include: Valuation Factors:
- Deals are typically valued at 6-11x trailing 12-month EBITDA
- Growth rates of 15-25% are crucial
- EBITDA margins above 15% are ideal
- Recurring revenue above 60-70% is attractive to buyers
Critical Elements for Premium Offers:
-
Organic Growth
-
Consistent year-over-year growth
- Demonstrated sales and marketing capabilities
-
Strong leadership team
-
Profitability
-
High EBITDA margins
- Efficient operational processes
-
Rule of 45 (growth % + profit % ≈ 45)
-
Market Positioning
-
Verticalized focus
- Broad geographic reach
-
Specialized service offerings
-
Customer Relationships
-
Multi-year contracts
- Low customer churn
- Repeat business
-
Strong customer retention metrics
-
Deal Structure
-
Flexibility in owner transition
- Balanced risk allocation
- Potential for earn-outs or seller notes
The podcast emphasizes working with M&A advisors like Revenue Rocket to optimize these factors and prepare a company for a premium acquisition offer.
RELATED EPISODES:
Episode 166: Understanding Revenue Models and How They Impact Valuations. Listen now >>
Episode 145: Why Sellers with Vertical Market Approaches Earn Premium Valuations. Listen now >>
Recurring Revenue
Episode 19: The Rule of 45. Listen now >>
Check out our podcast playlist on Organic Growth Strategy >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Valuing the Worth of Your IT Services Company: Internal vs. External Valuation Considerations. In this episode we cover:
- Understanding the Role of Valuations in IT Services Companies
- Importance of Valuations for IT Services Companies
- Internal valuations and Corporate Governance
- Differences Between Internal and Open Market Valuations
- Providers of Valuations and Regulatory Considerations
- Best Practices for Periodic Valuations
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
We're diving into the critical role of legal counsel in M&A transactions. Key points included the necessity of having an M&A lawyer familiar with the industry and transaction size to efficiently manage legal aspects. The conversation emphasizes the importance of early lawyer engagement, especially during the LOI stage, and the need for open, transparent negotiations to avoid deal fatigue and minimize costs. Best practices include holding regular meetings to resolve issues promptly and focusing on key terms rather than minor details. Effective collaboration between legal teams and advisors can significantly streamline the M&A process and ensure successful deal outcomes.
RELATED EPISODES:
Episode 195: Win/Win vs. Win/Lose Dynamics in M&A Negotiations. Listen now >>
Episode 149: Legal Counsel and M&A Transactions for IT Services Firms. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
What does M&A readiness mean as an IT Services firm? We're answering some of the questions you should be thinking about when planning the next move for your business.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Challenges and opportunities with Carve-outs in M&A
- What is a carve-out?
- Why should corporations consider an M&A process of a division?
- Who needs to know about the carve-out within the business that’s being carved out (vs. the portion that’s not)
- What key areas do buyers need to dig into to understand the ongoing nature of the firm?
- How do valuation expectations change for a carve-out?
- How does due diligence differ in a carve-out?
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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Most impactful trends forecasted to hit the tech-enabled services sector in 2025.
Predictions for 2025
- MSP targets continue to get multiple offers as consolidation continues
- Rise in custom app dev space: custom app dev, near shore, and transformation projects continue
- Prepare for the unexpected with new policies
- The need for security everywhere will continue growth in cybersecurity M&A
- Global M&A will continue
- Software firms will seek partners to consolidate (behind closed doors)
- Aging tech founders who started businesses 15-25 years ago will look toward exits or exit planning
- AI & automation will move from magic to deployment, and a search for talent will drive M&A
- Multiples will increase for niche markets
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Key points* M&A is a critical growth strategy for top quartile companies, helping them expand market share, add capabilities, and grow geographically. * Corporate development functions often lack the specialized skills and resources required to effectively execute M&A, making an outsourced advisor like Revenue Rocket valuable. * An M&A advisor can provide objectivity, expertise, and a Dutch uncle role to help guide both the buyer and seller through the complex M&A process. * M&A advisors do not have a pre-packaged list of deals, but rather tailor their research and outreach to each client's unique needs and ideal acquisition targets. * The post-merger integration phase is critical, and an M&A advisor can help ensure a smooth transition by providing an objective, expert perspective. * Outsourcing corporate development to an M&A advisor is typically more cost-effective than building an internal function, with a potential 5x savings. * Without an experienced M&A advisor, companies risk common pitfalls like failing to meet expected shareholder value and not dedicating enough time to the acquisition strategy. * The tech services sector is expected to see continued M&A activity in 2025, presenting opportunities for both buyers and sellers. * Revenue Rocket has 25 years of experience in the tech services M&A space and is well-positioned to help clients navigate this active market. * Listeners are encouraged to reach out to Revenue Rocket with any questions about M&A or growth strategy.
RELATED EPISODES
- Episode 202: Leveraging Quality of Earnings Reports in M&A Transactions. Listen now >>
- Episode 190: Buying a Business is not like Buying a Car. Listen now >>
- Episode 84: Why Inorganic Growth is Never off the Table. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Key Points Discussed* Independent sponsors are individuals looking to invest in or acquire their first company, often using outside financing. * Independent sponsors differ from private equity funds in that they need to secure funding after finding a deal, whereas PE funds have pre-committed capital. * Sellers need to carefully evaluate an independent sponsor's ability to raise the necessary funding to complete a deal. * Independent sponsors may offer higher enterprise values than other buyers, but the deal closing is less certain. * Independent sponsors should have a strong strategic, cultural, and financial story to present to sellers. * Independent sponsors should line up multiple potential funding sources to mitigate the risk of a single source falling through. * Sellers can sometimes negotiate shorter exclusivity periods in LOIs with independent sponsors. * Advisors like Revenue Rocket can help sellers evaluate and qualify independent sponsors to improve the chances of a successful transaction. * Independent sponsors can be a good option for sellers, but the process requires careful consideration of the risks and benefits.
RELATED EPISODES
Episode 173: Why is selling a Business so Hard? Listen now >>
Episode 161: Importance of Determining ROI on an M&A Investment. Listen now >>
Episode 97: Understanding Search Funds as an IT Services Seller. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Mike, Ryan and Matt from Revenue Rocket discussed the importance of a quality of earnings (QOE) report for IT services firms in the context of M&A transactions, highlighting that it is a comprehensive financial analysis that can provide third-party validation and help streamline the acquisition process. They also explored the benefits of Revenue Rocket offering QOE services as an independent tool to gain market visibility and access to potential buyers and sellers.
Key pointsQuality of Earnings (QOE) report is a detailed financial analysis that certifies the accuracy and quality of a company's earnings and cash flows.
QOE reports are commonly used in M&A transactions, either by buyers to validate the target's financials or by sellers to prepare for a sale.
QOE reports are typically paid for by the buyer or financial sponsor, but sellers may also obtain one preemptively.
QOE reports are not regulated, but should be conducted by reputable providers with industry expertise, financial analysis skills, and the right tools.
Transparency and preparedness are key for sellers undergoing a QOE, as it allows the provider to efficiently complete the analysis.
QOE is a component of the broader financial due diligence process, which also includes reviewing the company's systems, processes, and other financial metrics.
Having a credible, independent QOE report can help sellers prepare for and accelerate the sale process.
For buyers, a QOE report provides confidence in the target's financials and can uncover potential issues or risks.
Revenue Rocket can provide QOE services to both buyers and sellers, but must maintain independence if involved in the transaction.
Offering QOE services can also be a business development opportunity for Revenue Rocket to gain visibility and potentially lead to other engagements.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
This episode discusses the challenges and strategies for re-entering the market after a deal doesn't close. Key points include understanding why the deal failed, whether due to strategic, cultural, or financial issues. Emphasis is placed on maintaining business operations and maintaining a positive outlook. Advisors can help by revisiting previous suitors and ensuring transparency about the deal's failure. It's crucial to reset expectations, especially regarding valuation, which may change based on current financial performance. The importance of working with experienced advisors and maintaining a fresh perspective is highlighted, along with the need to manage deal fatigue and maintain business continuity.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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Key points* Convertible notes provide sellers flexibility to participate in upside if the business performs well, while also offering some downside protection. * Convertible notes involve a seller providing a loan to the buyer, with the option to convert the remaining balance to equity at a future trigger point. * The conversion trigger is typically a date or milestone, after which the seller can choose to convert the note to equity rather than receive the remaining cash payout. * Convertible notes are commonly used in IT services M&A to allow sellers to "have a second bite at the apple" if the combined business grows significantly. * Thorough due diligence on the buyer's financial stability and growth plans is critical for sellers considering a convertible note. * Dilution from multiple acquisitions is generally not a major concern with convertible notes, as the structure can be designed to minimize impact. * Key negotiable terms for convertible notes include interest rate, payment schedule, and conversion triggers/parameters. * Sellers should seek legal and M&A advisory expertise when structuring convertible notes to ensure favorable terms. * The main benefits of convertible notes for sellers are reduced upfront risk and the ability to participate in future upside.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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In this episode, we're talking about keeping the spark alive in an M&A deal and strategies for avoiding burnout.
Key points discussed in this episode:
- Deal fatigue is common in M&A transactions due to the numerous decisions and interdependencies involved.
- Advisors can help buyers and sellers avoid deal fatigue by setting expectations, managing timelines, and providing guidance.
- Patience is crucial, especially for buyers, as the M&A process can take up to a year to complete.
- Regular status updates and clear communication among all stakeholders help maintain motivation and engagement.
- Sellers may feel overwhelmed by the due diligence process, but should focus on responding effectively and keeping the business running.
- Unscrupulous buyers may attempt to "retrade" the deal at the last minute, which sellers can defend against with the help of advisors.
- Funding sources and approvals should be secured early in the process to avoid delays and frustration.
- Buyers who are too slow in decision-making risk losing opportunities to other interested parties.
- Maintaining a positive attitude and leaning on a strong support network can help both buyers and sellers navigate the M&A process.
RELATED EPISODES:
- Episode 195: Win/Win vs. Win/Lose Dynamics in M&A Negotiations. Listen now >>
- Episode 173: Why is Selling a Business so Hard? Listen now >>
- Episode 127: The Critical Pillars to M&A Success. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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Mike Harvath, Matt Lockhart, and Ryan Barnett discuss the importance of taking breaks for business leaders. They emphasize that stepping away from daily operations can provide new perspectives, enhance creativity, and improve decision-making. Mike shares his personal experience of recharging during a holiday, which led to better problem-solving and leadership. Matt highlights the benefits of silent retreats for mental and spiritual refreshment. They agree that hobbies and different environments can foster creative thinking and better strategic decisions. Ryan concludes that time away allows leaders to trust their teams, enhances leadership, and contributes to overall well-being and effective business management.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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Here are a few questions we dive into to help frame up this discussion.
- What role does a sense of urgency play in driving growth within IT services firms, and how can leaders cultivate this urgency without creating chaos?
- How do you differentiate between a healthy sense of urgency and the detrimental effects of being in a rush when executing strategic initiatives?
- What are some common pitfalls that IT service firms encounter when they confuse urgency with haste in their growth strategies?
- Can you share an example where moving too quickly hindered the success of a business transformation, and what could have been done differently?
- How do you ensure that the urgency to implement change doesn’t compromise long-term strategic goals and quality execution?
- What key indicators help you determine when the urgency around a decision is justified versus when the team needs to slow down and think more critically?
- In your experience, what leadership qualities are most important when navigating the balance between urgency and careful, strategic growth?
- What advice would you give to IT services firms looking to maintain a sense of urgency while avoiding burnout and poor decision-making?
RELATED EPISODES:
Episode 122: Don't Make the $100k Sales Person Mistake. Listen now >>
Episode 162: Aligning Leadership in M&A for a Better Deal Outcome. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Mike Harvath, Matt Lockhart, and Ryan Barnett discuss the successful M&A process for Project Black Sparrow, a $19M managed service provider. Revenue Rocket assisted Black Sparrow on both the buy-side and sell-side, helping them identify and close strategic acquisitions. The sell-side process involved evaluating over 500 companies, narrowing down to 25 potential buyers, and ultimately closing a deal in less than six months. The transaction highlighted the importance of strategic and cultural fit, leading to a smooth due diligence and a successful partnership.
- Helping them grow through a Revenue Rocket Buy-Side Program
- Helping them grow with deal facilitation/valuation expertise
- Converting to a Revenue Rocket Sell-Side Program
- Valuation on the business
- Packaging and marketing
- Deal flow (150 screening calls leading to NDAs, 20 IoIs, select LOIs)
- Due diligence support
- Role of the buyer – and how the winning LOI was landed (more about the vision than the specifics)
- Keeping owners focused on the business while we ran the process
- Exceeding expectations for value, timing
- Exciting future ahead.
RELATED EPISODES:
Episode 80: Seller's Perspective: Due Diligence. Listen now >>
Episode 88: Sellers: Timeline Expectations for an M&A Deal. Listen now >>
Episode 119: Breaking Down a Successful Sale of a $13M MSP. Listen now >>
Episode 139: Breaking Down the Successful Sale of Project Deacon. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
OUTLINE OF THIS EPISODE:
- M&A Negotiations Introduction
- Setting the Tone for Fairness in M&A Negotiations
- Balancing Interests in M&A Transactions
- Transparency and Trust in M&A Negotiations
- Deal Fatigue and Negotiation Strategies
- Impact of Win-Win Negotiations on Post-Transaction Relationships
RELATED EPISODES
Episode 174: Buy-Side M&A: Tackling the most Challenging task of Finding a Willing Seller. Listen now >>
Episode 143: Perfect in M&A Doesn’t Exist: Learn Where you can Flex. Listen now >>
Episode 100: Looking back at 100 Episodes and Narrowing in on Working Capital. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
KEY HIGHLIGHTS OF THIS EPISODE:
- Definitions and Roles of Brokers
- Understanding fee structures on the buy side and why it matters
- retainers & fees
- Revenue Rocket's Model (Retained Advisor) vs. Contingent Brokers
- Exclusivity and Opportunistic Nature of Contingent Brokers
- Referral Fees and Market Dynamics
- Contingent vs Retainer based - expectations for success
RELATED EPISODES:
Episode 125: Value of an Industry Specific M&A Advisor. Listen now >>
Episode 92: Why You Should Take the Call from an M&A Advisor. Listen now >>
Episode 91: M&A Fees: What to Expect Before, During, and After Close. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Reselling today is not the same as reselling was yesterday. Reselling today is not the same as reselling was yesterday. Mike Harvath and Ryan Barnett dive into reselling in the tech-enabled services industry. They note the impact of cloud-based services on reselling margins and the importance of building a robust services business to complement reselling. They also discuss the challenges and opportunities for private equity firms in valuing reselling businesses, emphasizing the need for advisory firms like Revenue Rocket to navigate the complex landscape.
Episode Outline:
- Reselling's Evolution and Its Impact on M&A
- The Renaissance of Value-Added Reselling
- Challenges and Opportunities in Specialty Reselling
- The Role of Private Equity in Reselling
- The Future of Reselling and Its Impact on Customers
Related Episodes:
Episode 178: The Pros and Cons of IT Reselling in M&A Transactions. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
This episode of Shoot the Moon covers Buyer & Seller perspectives in the last week(s) leading up to close.
RELATED EPISODES:
Episode 83: The 11th Hour. Listen now >>
Episode 154: What Will be Your Take Home Portion of the Deal? Listen now >>
Episode 158: Between the LOI & Deal Close, What should you Expect? Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Utilizing Marketplaces for M&A Deals. Third party marketplaces have really emerged in the past few years. These are services that a buyer or seller subscribes to to find deal related information and oftentimes try to match your company as best as possible through AI or manual matching.
Matt Lockhart and Ryan Barnett discuss the evolving landscape of third-party marketplaces for M&A transactions in the tech-enabled services sector. They highlight the increasing interest in these marketplaces, driven by the growing recognition of the value in tech services firms. They note that while marketplaces like Axial, PE Marketplace, and GRV Source can broaden the pool of potential buyers and sellers, they also present challenges such as the generalized nature of listings and the need for specialized understanding and marketplaces are a useful tool but should be part of a broader outreach strategy.
- The use of third-party marketplaces like BizBuySell, DealStream, Axial, and PE Marketplace for finding and selling businesses.
- Marketplaces can be a useful tool to increase the top of the sales funnel, but require careful curation and alignment between buyers and sellers.
- Buyers using marketplaces may not always have deep industry expertise, leading to potential misalignment.
- Sellers should proceed with caution when using marketplaces alone, as significant work is still required to properly prepare a business for sale.
- Advisors can play a critical role in helping both buyers and sellers navigate the complexities of the M&A process.
- Competition for deals can increase when using marketplaces, as the goal is to get in front of as many potential buyers as possible.
- Buyers should view marketplaces as one tool in their inorganic growth strategy, not the sole source for finding acquisition targets.
- Proper cultural, strategic, and financial fit are essential for successful transactions, regardless of the sourcing method.
- The group discussed the recent podcast episode on "Buying a Company is Not Like Buying a Car" and the importance of this mindset.
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Mike, Ryan, and Matt from Revenue Rocket discussed the importance of understanding the strategic, cultural and financial fit when evaluating potential buyers in tech-services M&A transactions, emphasizing the need for a comprehensive approach beyond just financial capability. They highlighted the complexities of M&A transactions, the emotional aspects for founders, and the role of a competent advisor in navigating the process and ensuring a win-win scenario for both buyers and sellers.
Key points
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Buyers often approach acquiring a company like buying a car, but sellers see it as a complex partnership that requires strategic, cultural, and financial alignment.
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Sellers, often founders, have built their business with blood, sweat, and tears, and are protective of their team and customers when considering a sale.
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Buyers need to approach the process with an open mind, seek to understand the seller's perspective, and demonstrate how they can create value together, not just offer a price.
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Advisors play a critical role in facilitating the right buyer-seller fit, rather than just facilitating a transaction.
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Sellers are looking for buyers who are a good cultural and strategic fit, not just the highest bidder.
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Buyers making offers without proper diligence or understanding the seller's motivations can be a turnoff for sellers.
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The introduction and early interactions between buyers and sellers set the tone for the entire process.
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Buying a company is a complex, relationship-building process, not a simple transaction like buying a car.
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Sellers have leverage in the current market and can be selective in choosing the right buyer.
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Advisors can help both buyers and sellers navigate the process and find the best fit.
Immediate turn offs for sellers from buyers:
- Coming off too strong of how to run a business vs trying to understand the seller's business model - sellers need to know that the buyer is low risk for their employees, customers, and have an open mind about how to do things as a combined entity. This challenges the success of post-merger integration
- A buyer's attitude about their successful past
- Be careful what documents you put in front of a seller too early
- Blowing the introduction call - this meeting sets the tone for the entire process between both parties! Take it seriously
Our job is to help buyers & sellers find the best cultural fit, strategic fit, and financial fit to make a win-win-win scenario for all parties. This has been our speciality for IT Services firms for 25 years. Reach out to schedule a no obligation introduction call.
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EPISODE OUTLINE:
- Partnerships in business and their importance in growth.
- Valuation and buyout considerations for businesses with multiple partners
- The importance of documentation, shareholder agreements, operating agreements and more
- Valuing a business for partner buyout or sale, importance of credible outside counsel, and potential impact of a departing partner on continuity
- Managing partnerships, exit strategies, and value creation in business
RELATED EPISODES:
- Episode 168: Adjustments to EBITDA and Valuation based on Owner Comp. Listen now >>
- Episode 162: Aligning Leadership in M&A for a Better Deal Outcome. Listen now >>
- Episode 144: Navigating Exit Strategies: What are your Options? Listen now >>
- Episode 136: CEO and Leadership Transitions When Selling your IT services Firm. Listen now >>
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We talk alot about Multiples of Revenue & EBITDA when it comes to an M&A deal. In this episode we are unpacking how we use them, why they are important, and how buyers & sellers can align when it comes to deal multiples.
- What is a multiple?
- Why are multiples used in M&A deals?
- How is a multiple calculated? Does it include items like cash harvest or employee agreements?
- Based on different categories, different sub-industries in tech-enabled services will warrant different multiple ranges. What are some of those categories and ranges? For example: Staffing companies, resellers, custom app dev, CSPs, MSPs, cybersecurity, generative AI
- How do other items, like size, geography, vertical market concentration in clients, impact a multiple? How do non-financial factors like culture impact a multiple?
- How do Revenue and EBITDA multiples interact? We’ve seen firms with high profit margins result in deals that are 2-3X revenue.
- If someone hears a multiple, it feels like they hear either the highest number if they are trying to sell or the lowest if they are trying to buy. How do you explain the nuances to a buyer or seller?
- If multiples are more of a gut check on the proper ranges of a deal, how often are M&A enterprise values tied directly to a multiple of EBITDA?
- How important is it to get the proper deal comparisons if multiples become a method of comparing two firms?
- If a deal is based on a multiple of EBITDA, how do buyers and sellers agree what is in or out of adjusted EBTIDA?
- What are examples of firms that traded well outside of an industry norm for a multiple?
EPISODE SUMMARY:
- Multiples, such as a multiple of EBITDA, are commonly used in M&A deals as a simple way to gauge the value of a company. However, they are not the sole determinant of a company's valuation.
- Adjustments to EBITDA, known as "add backs", can be made to account for one-time expenses or other factors that will not continue post-transaction. The agreed-upon adjusted EBITDA is a critical factor in determining the multiple.
- Many factors beyond just the EBITDA multiple impact the final enterprise value in a deal, including strategic fit, cultural fit, and buyer synergies. The multiple is more of a planning tool than a definitive valuation.
- Higher profitability tends to correlate with higher multiples, while lower profitability may not support a revenue multiple above 1x. Finding truly comparable companies can be challenging.
- Deals sometimes trade outside of typical multiple ranges due to strong strategic fit or other unique factors, highlighting that multiples are not the only consideration in valuation.
RELATED EPISODES:
Episode 141: Add-Backs 101. Listen now >>
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Questions we dive into in this episode all about building relationships with a banking partner for M&A deals:
- What role do banking partners play in M&A deals within the IT services sector?
- What key criteria should companies consider when evaluating potential banking partners for M&A transactions?
- How do you assess the experience and expertise of a banking partner in the IT services industry?
- How important is the relationship between the buyer and the banking partner and what signs indicate a trustworthy and reliable banking partner?
- How can a company evaluate the financial strength and stability of a banking partner?
- How can buyers effectively evaluate the interest rates offered by different banking partners? What factors should be considered when comparing interest rates from various banks?
- What strategies can buyers employ to negotiate better interest rates with their banking partners? Are there specific terms or conditions that buyers should focus on to secure favorable rates?
- How do interest rates impact the overall cost of financing an M&A deal?
- How should companies assess the track record and success rate of a banking partner in previous M&A deals?
- How significant is a banking partner’s reputation in the IT services industry and what methods can be used to verify and evaluate a bank’s reputation?
- What role does the banking partner play in the due diligence process during an M&A deal?
- What will you need to provide to secure a loan?
- How do banking partners assist in identifying and mitigating risks associated with M&A transactions?
- How can buyers evaluate and compare the fee structures of different banking partners?
- Are there any hidden costs or fees that buyers should be aware of when working with a banking partner?
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Let's first understand customer concentration. Customer concentration is essentially where is revenue concentrated in your firm? Is it held by a few clients, a lot of clients? If you are in the bucket of having revenue very concentrated by a few good clients, or your acquiring a firm structured this way, this podcast episode is for you.
Why is customer concentration such a significant concern in M&A transactions?
What customer-related metrics are buyers looking for in an M&A transaction?
What red-flags will buyers be looking for concerning customer concentration?
What’s normal for large customers in the IT services world? How does this vary by category between MSPs, application developers, or software channel partners?
If you are a seller and have high levels of customer concentration, what should you expect in terms of purchase price adjustments?
Can you explain how earn-out provisions and contingent payments work with customer concentration?
What types of representations and warranties should will a buyer seek from the seller regarding customer relationships?
How can holdbacks or seller financing help mitigate risks?
What are the critical components of a successful customer transition plan post-acquisition?
How can representations and warranties insurance help in managing customer concentration risks?
Can you share any real-world examples where customer concentration was a significant issue in an M&A transaction and how it was successfully managed?
RELATED EPISODES:
Episode 152: Understanding Reps & Warranties for Buyers and Sellers. Listen now >>
Episode 90: Selling-In v Selling-Out. Listen now >>
Episode 73: Levers & Currency: M&A Deal Structures. Listen now >>
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How large of a company can you buy?
Let’s assume you’ve found a company that’s a great strategic and cultural fit.
- Can you speak to different acquisition types? For example, tuck-in, platform, or merger?
- What key metrics should you consider in the evaluation of the firm? (Revenue, EBITDA addition, growth rates, Return on investment)
- What’s the general guidance of how large a firm should be compared to revenue? (.5 to 2X revenue)
- What type of debt ratios should you consider?
- How do future earnings / cash flow considerations play in the size of a deal?
- If it’s a larger firm, how do you approach integration of the firm differently?
- Is there a quick formula that helps determine the rate of return for a firm or how many years are needed to receive a return
- Should you buy the biggest firm you can? (Discuss a small deal is as much work as a large deal)
- If you are buying a firm that’s bigger than you, how do you approach integration differently?
- How does working with a funding partner, like a strategic PE firm, change the size of deal you should consider?
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How does culture influence successful M&A deals? In this episode, we are talking about the importance of cultural fit when organizations come together in a merger or acquisition. We have special guest, Chelsey Nord, Revenue Rocket's Director of Strategy joining us on this podcast to share her expertise and experiences.
Questions Chelsey dives into:
- How do we define culture?
- How does organizational culture influence the success of M&A deals?
- What evidence do we have that culture impacts performance?
- How do most firms plan for culture fit as they look to buy or sell in today’s environment?
- What is RRCG’s perspective around culture fit in M&A? What’s the goal?
- What is RRCG's Approach to Culture Fit in M&A?
- What are greenlights or positive signs early in the M&A process that culture fit will be favorable?
- When in the M&A process should culture be addressed? Are there certain milestones?
RELATED EPISODES:
Episode 112: Why Culture Matters in Tech Focused M&A Feat. Chelsey Nord
Episode 111: Culture and IT Services Companies feat. Chelsey Nord
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What is a process and if you are considering one what should you think about when hiring a firm to help you do it? How do you vet firms?
OUTLINE OF THIS EPISODE:
Introduction to selling your business with a process.
What is a process and what is a deal facilitation?
What types of processes are there?
- Structured process – soliciting a limited but significant, number of buyers to evaluate the business and put forth an offer
- Becoming a platform by selling in, typically with a PE firm
- Minority investment: selling a portion of equity while retaining full ownership
- Management buy-out or an employee stock ownership plan
- Recapitalization: restructuring capital but owners retain ownership and continue to manage the business
- Spin-off/Divestiture – carving out part of the business
- Deal facilitation – you’ve identified a potential buyer and need want to get a deal done
If we compare having a structured process where you are put in front of a number of buyers to deal facilitation, where one buyer is already identified, what are the merits of running the process?
Let’s start with the enterprise value of a deal – how does that change between a process and a facilitation?
What about timing for a transaction? Which one will run faster? Are there parts of the process that will run the same (e.g. DD, legal drafting)
How does competition between buyers impact the process?
If you’re doing just deal facilitation, will a buyer really know the maximum potential of their firm?
How easy is it to convert from a deal facilitation to a full process?
Why would someone not want to run a full process?
RELATED EPISODES:
- Episode 179: How to Evaluate Multiple Offers for your Tech Services Business. Listen now >>
- Episode 165: What is Deal Facilitation? Listen now >>
- Episode 125: Value of an Industry Specific M&A Advisor. Listen now >>
- Episode 110: Identifying the Ideal Suitor. Listen now >>
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In this Shoot the Moon podcast episode, we have special guest and marketing guru Mark Coronna. This conversation centered around the importance of marketing for tech-enabled services companies, with a focus on prioritizing marketing, creating a unique value proposition, and investing in growth strategies. Mark and Ryan discuss the benefits of fractional marketing executives, including providing immediate expertise and improving marketing and sales alignment. They also highlighted the challenges of aligning business strategy with marketing strategy, selecting and implementing the right technologies, and bridging the gap between strategy and execution. Overall, the conversation emphasizes the critical role of marketing in driving long-term growth and valuation for midsize businesses.
good marketing = profitable growth = good valuation!
If you can listen to this episode and change your thinking a little bit, that is the goal!
MEET MARK CORONNA & AUTHENTIC BRAND
Authentic® is a community of Fractional CMOs who help growing businesses Overcome Random Acts of Marketing® and confidently take the next right step to build revenue. Mark Coronna is Authentic's Chief Development Officer, and his driving goal is to work with businesses to create profitable growth through "full-stack" marketing programs which start with a differentiated strategy and market position and end with excellent go-to-market execution and strong financial results. You can reach Mark at mark.coronna@authenticbrand.com
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Break up fees or Transaction Termination fees: A fee put in place by a buyer or a seller that if the deal does not transact as outline, there could be a fee owed to one party or the other. This is a mechanism to help buyers and sellers move along a deal and if the deal doesn't get done, is a safeguard for the parties. It's typically paid by a buyer for making the decision to terminate a letter of intent (LOI) prior to close. These are usually introduced for very specific reasons like something looming or previous interactions between a buyer and a seller. These are not typically common in an IT Services deal, because of the privately held nature of this industry but we have been seeing them more lately. We don't believe this will become a standard operating procedure but does happen on a case by case basis.
Why does this happen? Well, the cost of diligence and doing the work is high as you begin to move from LOI to close, and this helps to keep both parties at the table, and if the buyer decides to terminate, then the seller has some compensation for the effort, and dollars spent on the deal up to that point. Sometimes a deal will fail because the seller found a better deal with a different buyer.
When would you not pay a breakup fee? There are some things that would warrant a transaction being terminated. If a buyer cannot secure financing, a major client terminates their contract between LOI and close, or key personnel decide to not come along for the ride. These scenarios should be outlined in the agreement or a separate agreement.
- Introduction to Breakup Fees: Can you explain what breakup fees are and why they are used in M&A deals?
- Historical Context: How have breakup fees evolved over time in the tech-services sector?
- Calculation and Standards: How are breakup fees typically calculated in tech-services M&A deals? Are there industry standards or benchmarks?
- Purpose and Benefits: What are the main purposes of including a breakup fee in an M&A agreement?
- Types of Breakup Fees: Are there different types of breakup fees? If so, what are they and how do they differ?
- Buyer and Seller Perspectives: From the buyer's perspective, what are the advantages and potential risks of breakup fees? How about from the seller's perspective?
- Negotiation Tactics: How do negotiation tactics differ when discussing breakup fees? What are some common points of contention?
- Case Studies: Can you provide examples of successful tech-services M&A deals where breakup fees played a critical role?
- Legal Framework: What legal considerations should companies be aware of when including breakup fees in their M&A agreements?
- Financial Impact: How do breakup fees impact the overall financial health of the companies involved, both in the short and long term?
- Impact of Market Conditions: How do varying market conditions, such as economic downturns or booms, affect the negotiation and implementation of breakup fees?
- Common Pitfalls: What are some common pitfalls to avoid when structuring breakup fees?
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Mike Harvath and Matt Lockhart from the Revenue Rocket team recently attended a large MSP Conference in Chicago where Mike had the opportunity to speak on "10 Questions to Consider before Selling your Tech-Services Firm." In this episode, Mike, Matt, and Ryan are unpacking one of these questions, Selling-In vs Selling-Out and some takeaways from this recent conference.
A few areas we touch on in this episode:
- Unpacking and advice for those owners saying "I'm not willing to sell but I'm willing to buy"
- Understanding your options for Selling-In
- Working with a capital partner
- Pick Selling-in OR Selling-Out, not both
- Diving into no deal is the same and deal structures are unique
- Quick Takeaways from the Channel Partner MSP Growth Show in May 2024
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If you’re a tech services CEO going through a process of selling your business and get to a point where multiple firms are looking to acquire you, you need to evaluate your options. What should someone be looking for?
Questions
First off: how does someone get multiple offers?
What’s an exclusivity clause in an LOI?
How should a seller approach negotiations when they have multiple interested buyers?
We talk about deals getting done when there’s a strategic, cultural, and financial fit. How do you evaluate the strategic fit?
Can you discuss the importance of cultural fit between the buying and selling companies? How should this influence the evaluation of offers?
What are the key financial metrics that sellers should focus on when comparing different offers? How do these metrics impact the decision-making process?
Beyond enterprise value price, what other terms in an M&A offer should sellers pay close attention to?
How do you evaluate transition terms for owners?
Should the due diligence process be a factor in deciding which buyer to move with?
What are common pitfalls or mistakes that sellers make during the M&A evaluation process and how can they be avoided?
Could you share insights on the role of legal, accounting, financial advisors, and MYA advisors in the M&A process? How critical is their expertise in evaluating offers?
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This conversation highlights the importance of reselling in the tech-enabled services industry and the need for strong relationships between resellers and vendor partners.
Some highlights of this episode:
- Reselling in the IT industry, from its origins to present day
- Vendor-reseller relationships, challenges, and evolution towards services-led businesses
- Reseller business models, margins, and M&A valuations
- Reseller businesses, valuation, and margin optimization
- Reselling and services in the tech industry
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- What information should a potential seller give out?
- How should a person taking a call evaluate the buyer and their seriousness and intentions?
- How should a seller interpret the strategic fit? What questions should a potential seller as and when should they ask them?
- What should a seller do between the first reach out and the next call? (Set up how RR sets up a screening call)
- What should a seller expect in a process? E.g. screening call, NDA, intro meeting, financials, LOI, DD, close
- How should a seller determine what their firm is worth?
- When should a seller start negotiating?
- How should a seller deal with multiple buyers?
- How should a seller work with their team?
- What role does an M&A advisor play for a seller?
RELATED EPISODES:
- Episode 156: Understanding Caps and Baskets in M&A Transactions. Listen now >>
- Episode 141: Add-Backs 101. Listen now >>
- Episode 92: Why You Should Take the Call from an M&A Advisor. Listen now >>
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In this week's episode of "Shoot the Moon," hosts Mike Harvath, Ryan Barnett, and Matt Lockhart delve into a significant and exciting acquisition opportunity—Project Maya. The episode centers around the opportunity to acquire a specialized Philippine-based outsourcing firm renowned for its application support across various enterprise applications like ServiceNow, SAP, and Microsoft, among others. The firm, codenamed Project Maya, stands out with its $11 million revenue run rate and robust EBITDA profit margins, backed by a strong team of over 300 members delivering exceptional service, which has enabled it to secure notable global multinationals as clients.
The crew dives into not only the highlights of Project Maya's efficient operational model and its strategic market positioning but also explores the broader implications and opportunities of outsourcing in the Philippines—a premier destination known for its excellent English proficiency, cultural affinity with the West, and exceptional customer service standards. The discussion transitions into strategic insights on how companies can leverage such opportunities to enhance global service delivery and optimize cost efficiencies.
To learn more about Project Maya, click here.
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Is it worth trying to time the market for a sale or not?
Some of the questions we talk through:
- Can you explain the concept of "timing the market" in the context of selling an IT services business?
- What key indicators suggest it's an excellent time to sell an IT services company?
- How do macroeconomic factors influence the decision to sell an IT services business?
- What historical trends have you seen in the IT services M&A market that might inform timing decisions?
- What role does the competitive landscape play in the timing of a sale?
- Can you discuss the risks and rewards of trying to time the market for a sale?
- How should a company prepare for a sale to capitalize on favorable market timing?
- Could you talk about a time when a company successfully timed the market for their sale, and what lessons can be learned from that?
- What advice would you give to business owners who are uncertain about the right time to sell their IT services business?
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How do you source sellers on your own, and why is it so hard? Here are some of the questions we are digging into in this episode:
- What is buy-side M&A
- Why should companies be considering buying other firms?
- What goes into buying a company?
- What’s hard about sourcing when your doing the deal yourself?
- How do you create the list?
- How do you reach out to buyers?
- How do you determine value?
- How do you craft a LOI?
- What do you need to do in Due Diligence?
- How do you deal with disagreements if there are no advisors?
- How do you get through legal log jams?
- Why should you use an advisor?
RELATED EPISODES:
Episode 164: Elements of a Great Introduction Call. Listen now >>
Episode 163: Strategies to Manage High Seller Expectations. Listen now >>
Episode 155: A Short vs a Long LOI. Listen now >>
Episode 129: Questions to Ask Before you Consider an M&A Initiative. Listen now >>
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Segment 1: The Hard Truth About Selling a Business
Discussion on the complexity of the selling process
Financial and legal hurdles that need to be overcome
The emotional attachment to the business and its impact on the sale
Segment 2: The Emotional Ties That Bind
Deep dive into why selling a business is such an emotional time
Identity and self-worth tied to the business
The feeling of letting employees and customers down
The fear of the unknown post-sale
Expert Interview: A Psychological Perspective
Can you hit the number you want with a buyer you can work with?
Segment 3: Preparing for the Sale Process
Practical steps to detach emotionally from the business
Shifting perspective from owner to seller
Focusing on future opportunities
Getting your business in order: financial audits, valuations, and more
Assembling the right team: brokers, accountants, lawyers
Segment 4: Strategies for a Smoother Sale
Strategies for setting realistic expectations
Tips on maintaining business performance during the sale
Negotiation tactics and how to handle offers
Getting through Due Dilligence and a potential QoE
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Segment 1: Understanding the Role of an M&A Attorney
- Primary focus of M&A attorneys: overseeing the legal aspects of buying, selling, and merging companies.
- Complexity of M&A transactions: due diligence, negotiation, drafting agreements, and navigating regulatory requirements.
- Why specialized knowledge in finance, tax law, and securities law is important
Segment 2: The Generalist Lawyer: A Broad Overview
- What a generalist lawyer does: handling a wide range of legal matters across different areas of law.
- Advantages of working with a generalist lawyer for small businesses and individual clients.
- Limitations of a generalist approach in complex legal scenarios like M&As.
Segment 3: Key Differences Between M&A Attorneys and Generalist Lawyers
- Depth vs. Breadth of Knowledge: specialized vs. broad legal understanding.
- The importance of industry-specific knowledge in M&A transactions.
- Case studies or examples to illustrate how M&A attorneys add value in transactions that generalists might struggle with.
Segment 4: When Do You Need an M&A Attorney?
- Identifying the right time to engage an M&A attorney in your business transaction.
- The role of M&A attorneys in due diligence and negotiating deal terms.
- The consequences of not having specialized legal counsel in complex transactions.
- What if you have a long time business associate who’s provided legal council for years?
Segment 5: Tips for Choosing the Right M&A Attorney
- What to look for in an M&A attorney: experience, industry knowledge, and past successes.
- Questions to ask potential attorneys to ensure they fit your needs.
- Understanding the cost-benefit of hiring an M&A specialist.
- Look for M&A specialist with Technology Services expertise
Segment 6: The Future of M&A Legal Practice (optional)
- Emerging trends in M&A law: technology's impact, cross-border transactions, and regulatory changes.
- How M&A attorneys are adapting to new challenges in the global market.
RELATED EPISODES
- EPISODE 149 Legal Counsel and M&A Transactions for IT Services Firms. Listen now >>
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This is a must listen for buyers and sellers!
What’s the difference between 3X and 9X in a deal?
- Size
- Gross and EBITDA Profit margins
- Growth rates and forecast
- Technology specialization & Vertical specialization
- Type of revenue: contracted, recurring
- Client types and concentration
- Deal terms: equity, selling-in
- Strategic buyer: the right buyer can help drive the right multiple.
- Competition in a deal
- Market/Economic conditions
RELATED EPISODES:
- Episode 169: What are the Differences Between a Valuation and a Deal? Listen now >>
- Episode 166: Understanding Revenue Models and how they Impact EBITDA? Listen now >>
- Episode 163: Strategies to Manage High Seller Expectations. Listen now >>
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De-risk your biggest investment (your company) by becoming a platform company. Essentially a platform company (like an App integrator or Managed Service Provider or Digital Transformation Firm) is a top quartile, well-run company that takes capital from a private equity firm or other investor. When a private equity firm is investing, a platform company might be the first to receive investment which in turn will help them accelerate their organic growth and take advantage of acquisitions for further growth.
Some questions we're diving into in this podcast episode:
- What is a platform company
- What does an equity partner look for in a seller?
- What are some things a seller should have to be a good platform candidate?
- What are the next steps for growth after becoming a platform company?
- Why does the platform company need to have excellent leadership?
- What is a thesis?
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In the context of mergers and acquisitions (M&A), the terms "valuation" and "deal getting done" refer to distinct stages and aspects of the transaction process. Here’s a breakdown of the differences:
Valuation
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Definition: Valuation is the process of determining the present value of the target company. It involves assessing the company's financial performance, growth potential, market position, and any synergies that the merger or acquisition would bring. Various methodologies can be used, including discounted cash flow (DCF) analysis, comparable company analysis (CCA), and precedent transactions analysis.
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Purpose: The purpose of valuation is to arrive at an approximate value for the company that is being considered for acquisition or merger. This helps the acquirer to make an informed bid or offer price.
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Process: Valuation involves a thorough analysis of financial statements, market conditions, industry trends, and other factors that could affect the value of the company. Financial models are often built to simulate different scenarios and their impact on the company’s value.
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Outcome: The outcome of the valuation process is a range of values that represent the estimated worth of the company. This range is used as a basis for negotiation in the deal.
Deal Getting Done
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Definition: The "deal getting done" refers to the completion of the M&A transaction, which encompasses negotiations, due diligence, finalizing the terms of the deal, obtaining necessary approvals, and closing the transaction.
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Purpose: This stage is focused on finalizing the agreement between the buyer and seller, addressing any legal or regulatory issues, and ensuring that all terms of the deal are satisfactory to both parties.
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Process: After initial agreement on the valuation and terms, the process involves detailed due diligence (legal, financial, operational), negotiation of final terms, drafting and signing of agreements, obtaining regulatory approvals if necessary, and eventually closing the deal with the transfer of payment and ownership.
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Outcome: The outcome is the successful acquisition or merger of the target company by the acquirer, resulting in the transfer of ownership, integration of operations, and realization of synergies that were identified during the valuation process.
In summary, valuation is about estimating the worth of a company, serving as a critical step in determining how much should be paid in an M&A transaction. "Deal getting done," on the other hand, encompasses the entire process of negotiating, finalizing, and executing the transaction based on the valuation and other considerations.
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Scenarios discussed in this episode:
- Taking yourself out of the business
- Staying in the business at above-market comp
- Addressing spouses or children in the business
- What to expect post-close: consulting agreement, employment agreement
- Adjusting to life after a change in income and receiving cash at close
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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2023 was a challenging year for many tech-enabled services businesses as many end customers deferred projects or reduced technology-related spending.
This stressed revenue growth and gross margins, reducing EBITDA for many tech-service firms.
It’s tough to run a business through these times, it's easy for founders to become exhausted dealing with less while trying to run the firm as best as possible. If you founded a business in the early 2000s, you’ve been at it a long time and it may be time to cash out or at least remove some chips from the table.
With reduced profit and growth, many founders may defer selling their business as lower profits could lead to lower enterprise values.
We’d like to put a framework in place that helps business owners determine if this is the right time to buy.
Cash at close vs. Structure:
- there are deal terms that will produce higher enterprise values if payments are deferred.
- Earnouts can be based on hitting higher revenue targets
- Seller notes can help increase the overall enterprise value while creating an investment vehicle with market-driven interest rates
- Equity can be issued from the buyer, allowing for greater
Selling in vs selling out
- Selling-in during a downturn can give options for future payments in the form of deal structure
- Selling-in will typically have employment agreements that are at or similar to current salaries or market rates
Current market conditions
- Was 2023 just a bad year or something bigger? If growth slows or went backward and profit is down, but the market looks better, it might be a matter of riding it out until growth and profits return.
- Valuation trends: we’re not seeing a massive downturn in enterprise values based on the market, as buyers are looking for free-cash-flow which IT services businesses do a great job of producing.
Business performance now:
- It’s ideal to look at what’s working now and improve upon trouble areas. Buyers are always looking for strong sales, marketing, and delivery teams and that could create an opportunity.
Understanding your current investments and commitments.
- A business is oftentimes your biggest financial investment.
- There will be tax implications on any deal. Work with your tax professional to set up corporate structures and financial plans to help with taxes
- Understand your number: you’ll need to have an idea of how much money you need moving forward, especially in a case where you are selling out.
- Understand macro trends and investment options. Will the market have enough financial products available to provide consistent returns to the cash generated from the sale of the business?
Understand the risks of running the business
- Dividends are not guaranteed, and 100% of the risk is in your hands if you continue to run the business.
Work with an advisor
- Get a valuation to understand what your firm is worth today
- Work with your advisor to develop a list of strategic buyers who will be willing to see past short-term downturns.
- Tune up profit and growth: an external advisor can provide perspective on improving sales while increasing profit. Revenue Rocket can help evaluate your business and provide a roadmap and coaching to improve
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Matt & Ryan take over this Shoot the Moon podcast episode! We're talking about revenue models in IT Services companies and how each model impacts valuations in an M&A transaction. Oftentimes recurring revenue leads to a higher EBITDA which leads to a higher valuation. The more recurring revenue you have, the more you can bump up that EBITDA range, but there are different types of revenue to consider.
Recurring Revenue: Yearly or monthly contracts that often auto renew with a price increase in place. A leading revenue source when it comes to valuations - having sticky customers!
Re-Occuring Revenue: This is revenue that is generated from customers who make repeat purchases from your business.
Project Based Revenue: High value revenue in the digital transformation space where you are doing a significant project and key to the business progress that is expected to come from the completion of a project.
Hourly Based Revenue: Staffing revenue where simply you are selling time & the services that go along with that time.
Time & Materials Revenue:
Revenue Rocket helps tech-enabled sellers get ready to sell, and sell. Contact us to learn more about how we can help or check out our valuation calculator to get an estimate of what your firm could be worth in 10 minutes.
Even if you have a recurring contract, that contract may not be as valuable as you think - what matters is the demonstration of long term, repeat revenue from customers that trust you that you can show to a buyer.
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If you get a deal on the table, when do you accept it? M&A advisors usually work from origination to close, however an advisor can be utilized for specific functions in the process like origination only on helping getting a deal across the finish line. There are many different ways in which an M&A advisor can assist you, like deal facilitation.
- What is deal facilitation?
- What’s the role in crafting an LOI?
- What’s the role in Due Diligence Support?
- What’s the role in negotiation?
- Why is it important to have an advisor throughout compared to running it alone?
- How do fee structures differ for a deal facilitation?
Contact us today to learn how we can help you facilitate a deal or get ready for an M&A transaction.
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What are the right elements for an introduction call
What should you talk about, and what shouldn't you talk about
What do sellers want to hear from buyers?
- Culture – the more specific you can be the better
- Strategic fit
- Capability of doing a deal
- Strategy after a transaction
- Highlighting why the seller was targeted
What has to be shared as a seller
- What you do; service offerings
- How you sell and keep customers – highlighting recurring and repeat revenue streams
- Target market/customers
- Key partnerships
- Org structure and major team members
- Defining culture
- High level finanicials including revenue, gross margin, and profit
- Constraints in running the business
- Your intention as a seller
Listen until the end for a surprise appearance & history of Taylor Swift*
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How do you bridge the gap between someone who wants $7M but you're company is worth $6? Do you take the gamble and put structure in it that sounds like a win win or do you cancel the deal? Tune in to find out!
- Win Win situations
- How big of an apetite does a buyer have? Do you take the RISK?
- What kind of structures do you use if you take the deal?
- Buyer and seller sharing in the risk
- What happens when you don't take the deal?
- Why you should use an M&A advisor in a situation like this
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What we cover in this episode of Shoot the Moon with Revenue Rocket:
- Start early alignment in the process
- Be aligned with your partners on selling in vs selling out
- Valuation becomes critical and ongoing Valuations are important
- Work through disagreements with your partners
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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How do you determine ROI for an M&A transaction? Let's say you're acquiring a firm for $20M.. what kind of return on investment should you make long term from this acquisition? Learn all about ROI on M&A in this episode of Shoot the Moon.
- Introduction
- What is ROI?
- Factors affecting ROI in M&A investment
- Methods of calculating ROI
- Limitations of ROI
- Summary of the factors affecting ROI in M&A investment
Related Episodes:
- Episode 129: Questions to Ask Before you Consider an M&A Initiative. Listen now >>
- Episode 106: Buy-Side M&A 101. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
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Over 400 of the 5000 companies on the 2023 list are IT Services companies!
Learn more about our inclusion on the Inc 5000 list here >>
See Revenue Rocket's profile on Inc 5000 here >>
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In this episode of Shoot the Moon, we're talking about what we are seeing in the market for Q4 2023 M&A for tech-enabled services firms.Listen to Shoot the Moon on Apple Podcasts or Spotify.Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
You’ve done a lot of hard work of finding a suitor and there’s an LOI you’ve agreed to. We want to walk through some of the major steps as you work towards a deal close. The linear flow! First comes the LOI, then a big due diligence list which could come with a quality of earnings, then there may be a chance for renegotiation of the deal, through this process you will get different data requests (some outside of the formal due diligence list), be prepared to look at employments agreements, forecasts, and ultimately you are working towards a finalized deal and putting things together with post integration planning. Really work hard towards that close date and be sure to have the right team and advisors by your side!
Episode Talking points:
- What does it look like after the non-binding LOI is assigned?
- What is the timeline between LOI and close?
- What approach to take during due diligence and how to not get overwhelmed
- Using an M&A Advisor for deal negotiation
- Creative solutions during this difficult phase
- Understanding the forecast for the future
- Integration & Growth planning
- When do the teams meet?
- Preparing for schedules with the definitive agreements
- Post Integration planning
Getting the Due Diligence List
- Financial: P&Ls, tax returns, AR aging, AP aging, revenue by contract, EBITDA support
- Company operations: Corporate records, employee documents, employee census, updated org charts, benefits information
- Contracts & commitments: bank loans, lines of credit, financing arrangements, customer contracts, insurance info
- Audit results: any info on past audeits
- Marketing and sales: samples or marketing material, sales experience,
- Technology audit
Related Episodes
- Episode 79: Buyer's Perspective: Due Diligence. Listen now >>
- Episode 80: Seller's Perspective: Due Diligence. Listen now >>
- Episode 104: Honoring the LOI: When to Consider a Re-Trade. Listen now >>
- Episode 105: Pre LOI and Post LOI Information Requests. Listen now >>
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
When its tougher headwinds, it is tougher to demonstrate accelerated growth. The real value in your business is the historical growth, but uncertainty can be tough. Here's what we cover:
- Recent flat or down growth does not define your value
- Why IT Services is a great industry for M&A even with uncertainties - Valuations are still very high!
- Lots of options for selling in & selling out
- Valuations consider past & future performance - not just what you've been feeling the last few months!
- Partner with an advisor that can help you get somewhere you can't get alone
- Your time has come! Grandkids, retirement, bored... etc
Selling your business in uncertain market conditions can be a challenging and stressful process. Here is an outline of some tips and strategies to help you:
- Prepare your business for sale: Before you start looking for potential buyers, you need to make sure your business is ready for sale. This includes having a clear and realistic valuation, having updated and accurate financial records, having a solid business plan, and having a strong team and customer base.
- Find the right buyer: You need to find a buyer who is interested in your business and has the financial and operational capabilities to close the deal. You can use various channels to market your business, such as brokers, online platforms, or your own network. You also need to do your due diligence on the buyer and verify their credibility and intentions.
- Negotiate the best deal: You need to negotiate the terms and conditions of the sale with the buyer, such as the price, payment method, timing, warranties, and contingencies. You need to be flexible and realistic, but also protect your interests and goals. You also need to have a clear exit strategy and plan for the transition period.
- Manage the risks and uncertainties: You need to be aware of the risks and uncertainties that may arise during the sale process, such as changes in market conditions, regulatory issues, legal disputes, or buyer’s remorse. You need to have contingency plans and backup options in case things go wrong. You also need to communicate effectively with all parties involved and keep them informed of any changes or issues.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Below is what we discuss in this episode all about Caps & Baskets in an M&A Process:
Introduction
- Definition of indemnification provisions
- Importance of indemnification provisions in M&A deals
Caps and baskets
- Definition of caps and baskets
- Differences between caps and baskets
- Why caps and baskets are needed
Caps
- Upper dollar limit of the seller’s indemnification obligations to the buyer
- Negotiation of indemnification cap – differences between buyers and sellers here
- Different caps for different types of losses
- General indemnification cap vs. fundamental representations and warranties
Baskets
- Threshold amount of losses that the buyer must incur before seller’s indemnification obligations are triggered
- Negotiation of basket size and structure – difference between buyers and sellers
When to talk about these items:
- Might see an introduction in LOI
- Near the end of a purchase agreement
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
We're answering the following questions in this episode of Shoot the Moon:
- What is a letter of intent?
- What is an indication of interest?
- What’s critical in a letter of intent?
- Why would you issue a letter of intent versus as indication of interest?
- The leading line of a letter of intent is it’s non-binding in nature. What portions of an LOI survive if the deal does not close?
- What are the benefits of a longer LOI?
- What risks come with that longer LOI?
- What risks come with a shorter LOI?
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
What will be the take home portion of an M&A deal:
- Taxes
- Working capital; harvest cash but need to keep cash in the business. Appropriate vs historical
- Extinguishing debt
- Legal fees
- Accounting fees
- M&A advisory fees
- Deal structure: seller note
- Deal structure: earn-out
- Deal structure: equity
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Even if you're doing strategy, at some point M&A is going to be something that is of major consideration. Mergers and acquisitions play a critical role in accelerating growth, and even if you started the company a long time ago, the end will eventually be in mind for an owner.
Episode Summary:
- It’s common for founders to think a successful exit is on the future.
- Leave up to 50% of growth on the table if you don’t consider buying firms
- Growth and expansion often gets to a sticking point without buying another firm
- Speed matters in technology, and M&A can get you over major hurdles
- Buying firms through M&A can help build scale to make an exit more probable and successful.
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Episode Summary
- Expect a reps and warrants provision in a purchase agreement, both buyers and sellers will have reps and warrants. You’re vouching for what you provided is correct.
- Buyers will ask for some type of surety in reps and warrants; expect a hold back. That could be 10% of the cash in the deal.
- Reps and warrants are for pre-close activities; you’re attesting what your providing is true and correct. This does not impact post transaction activities
- There could be options for a hold-back including reps and warrants insurance
- Breaches are exceptionally rare unless the seller is a bad actor
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
In this episode of Shoot the Moon, we're talking about ownership within firms. The Revenue Rocket team dives into different types of equity that can apply at every level within a company and the benefits and alignment that come from equity both during and after a business combination.Listen to Shoot the Moon on Apple Podcasts or Spotify.Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.
Benefits of Rolling Equity
a. Allows seller to retain some ownership and control of the company post-sale
b. Opportunity to potentially receive additional compensation from the buyer
Potential Risks of Rolling Equity
a. Risk of reduced sale proceeds if the company does not reach performance milestones
b. Potentially complex tax implications for seller
Summary of this episode:
- Exchanging the value of the equity in your firm for the value in the combined equity. Ideally suited for a transaction where there is a potential for another transaction.
- It’s ideal for an ownership team that’s selling-in with a partner for future growth.
- For companies that have hit a growth hurdle, it’s a way to gain cash at close but realize the value of future performance to get to an enterprise value that’s your number over time and success
- Rolling equity gains alignment like few other deal structures as you all want to maximize your investment.
- Returns can be material – 2-3X times can happen. We’ve seen much higher. You’ll see multiple arbitrage as growth continues
- You’ll need to know how to monetize the equity you’ve received
- Buyers should expect reciprocal due diligence
Here's what we cover in this episode of Shoot the Moon:
- Where does legal counsel gets involved: NDA, LOI, Purchase agreement
- Roll of an accountant, M&A advisor, client and legal counsel?
- When do you bring legal counsel?
- Importance of an M&A lawyer and M&A in IT services specifically: what does a generalist typically miss?
- What are common legal items in tech-services businesses that may not be common elsewhere? E.g. sign and close, working capital, reps & warrants, asset deals vs stock deals
- M&A advisor focusing on the big picture compared to trading deal points
- How long is the definitive agreement process and how can you speed it up with legal counsel?
- Fees and what to watch for: rewrites of language compared to meaniful changes, trading clauses, etc.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Here are the 6 (& a bonus!) we talk through:
- The Length of the Deal Negotiations - M&A deals can take weeks, months, and even years to close
- The Complexity of the Process - Due diligence, legal paperwork, lien releases need to be completed.
- Quality of Earnings detail: 1-2 months of an intensive audit
- A debt free transaction and having adequate working capital
- Legal implication of an asset purchase: terminating employees and rehiring them, notifying customers of the transaction and a change of control
- What’s in LOI will change
- (Bonus) Emotional impact of going alone
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Episode Summary:
- What is an intern program and why is it important for IT service leaders to consider one
- Benefits of having an intern program, such as increased productivity, improved customer satisfaction, and potentially positive brand reputation
- Steps for establishing an effective internship program, such as identifying goals and objectives, recruiting interns, developing job descriptions, setting expectations for the intern experience, and providing feedback
- Tips on how to create a successful internship program that will help IT service leaders attract top talent
- Ways to measure the success of the program in order to ensure it is meeting its goals
- Examples of successful internship programs in the industry today
Listen to Shoot the Moon on Apple Podcasts or Spotify.
How Revenue Rocket Leverages Internships to Accelerate Growth
Here's what we cover in this episode of Shoot the Moon:
- M&A is hard and the most unnatural act in business; expect challenges and some loneliness in the process.
- Answer questions on your readiness for a sale: personnel motivation, financial readiness, history of success
- Avoid common mistakes of over valuing the business, ruling out suitors before discussions, being unwilling to negotiate, not having succession plans in place, waiting for suitors to knock on your door
- Run the business like it’s not for sale and meet sales, forecast, and profit expectations
- There will be changes between an LOI through Due Diligence and into close, work with a professional to get through the hundreds of points of back and forth
- There are options if you don’ sell the company in the first round.
- Be patient through the process – the more niche your business is may require time to find the right buyer. We talk about finding the right strategic, cultural, and financial fit, but timing can be a challenge
Summary of this Shoot the Moon Podcast episode:
- Picking a vertical market brings a level of differentiation that brings value
- Customers are easier to acquire and keep which increases revenue and profit will increasing the level and value of intellectual property.
- If buyers are in alignment with vertical markets, they are willing to pay up; not only do you get a premium from enhanced EBITDA, you gain more in strategic synergies
- Firms outside the vertical may want to get in and will acquire greater strategic value
- Industry experts can weather the storms of industry cycles and remain profitable
- Picking and winning a vertical market can be achieved, but work with an expert
If you're trying to find the absolute perfect deal (M&A), we know that 99.9% of the time it is not the reality. Being able to be flexible and adaptable in changing environments is crucial for success in business. Revenue Rocket has seen it all in our 23 year, and we'd love to talk with you about your organic and inorganic growth goals. Reach out for a no-obligation introduction call: info@revenuerocket.com
Win your vertical market! Below are some points discussed in this episode:
- Challenges of being a generalist - how do you stand out?
- Picking a vertical market brings extreme clarity to your strategy
- Sales and marketing click into place by focusing on 1 market
- It’s critical to commit. Uptime changed their name to Uptime Legal to dedicate themselves to 1 market.
- Understanding Revenue Rocket's proven growth method: SVP
Listen to Shoot the Moon on Apple Podcasts or Spotify.
We. Deal. With. Add Backs. Every. Single. Day. Tune into this episode to understand all things add-backs! What are they, why do they matter, and how to manage them during a process.
Informing your team of your decision to sell your firm
Layers of communication and timeline:
- Who starts with knowing and who comes into the loop before the rest of the company
- How do you position it
- Types of deal structures & how they effect your employees
- how you announce to the company
Project Deacon was an opportunity to acquire a growing, profitable cloud-hosting firm focused on the dental practice market with over 80% recurring revenue. They provide Cloud Desktop as a Service (DaaS), Managed Services, and IT Professional services - essentially a one stop technology shop of all the needs of growing dental services organizations. Revenue Rocket represented the firm as their sell-side M&A advisor.
Let's break down the sale:
- Running your business before a sale
- Profitability
- Positioning your Business in the market (SVP)
- Gather the right data
- Due Diligence
- Trust your advisors
- Happy Buyers & Sellers!
If you're considering an M&A process and don't know where to start (or do know!) Revenue Rocket would love to help. reach out to learn more about our sell-side consulting services: info@revenuerocket.com
Listen to Shoot the Moon on Apple Podcasts or Spotify.
It's hard to make a big choice in monetizing your life's work. It is important to understand the concept of not running your business like its for sale... but... listen was we dive into keeping a steady hand on the tiller when selling your business,
Understanding Structure as part of an M&A Transaction
We're diving into a lot of different structures and what they mean:
- Theres a big correlation between higher enterprise value and the structures you can have
- Earn outs need to focus on your company's growth goals with defined targets
- You have to earn out your earn out!
- Earn outs can lead to higher enterprise values
- Timing of payments should align with return on investments
- Seller notes: are they guaranteed payments? Should they be tied to performance?
- Equity is a strong tool and is the largest wealth creation tool within the other structures
- Cash is a great way to show that you believe in the business
- Creativity wins!
- Work with an advisor that understands EVERYTHING in your industry and market
Listen to Shoot the Moon on Apple Podcasts or Spotify.
As a business owner considering an exit:
- Make sure you can delegate the responsibilities to people running your company.
- Bring the right people into your team and consider compensating them for what the exit looks like to make sure they are bought into the sell
- At home: financially, friends & family, and important to replace a large chunk of your life that you will miss post-exit
- Who will be your sounding board? Advisor? Other CEO friends?
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Goodwill on your balance sheet is a filler of the true valuation of the business. Goodwill is the value a company gets from its brand, customer base and reputation associated with its intellectual property.
We've been getting a lot of questions and talks of Goodwill with our clients and during transactions lately and hope this episode gives you some insight into why it matters during a merger or acquisition.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
When picking a technology partner...
All relationships require investment and care in order to have them be fruitful and successful and no technology partner vendor is an exception. There are so many win-win scenarios when it comes to working with an OEM.
In the tech-enabled services market, service providers need to partner with leading providers of cloud, software, and hardware solutions to meet the needs of their customers.
In this podcast we will dig into what things an IT service provider should consider when establishing key partners with technology providers. For the sake of this podcast, we will call these providers original equipment manufactures – OEMs.
Here's what we highlight in this episode:
- products and services are huge when aligning
- Providing technical support
- Don't necessarily depend on leads but if you're aligned, things can come together
- If you're looking for commission dollars there is more money to be made on implementing
- Understanding that all channels have conflict but working with partners that understand conflict and can navigate together is important when having a relationship
- Invest in your relationship to get the most out of it
Listen to Shoot the Moon on Apple Podcasts or Spotify.
We’ve talked a bit about what to expect for fees when evaluating M&A vendors – you can check out previous podcasts and blogs on the topic on our website at RevenueRocket.com.
Today we want to dig into a provision you’ll find in nearly all M&A related contracts – a tail for a transaction after an agreement comes to an end.
But Before we jump into the specifics of tail related provisions, there are a few things you should know about how the M&A business operates
Types of M&A contracts
- Exclusive
- Non-exclusive
How M&A advisors are compensated
- Deal preparation/retainer
- Success fee
What is a tail?
A tail is a provision in an M&A contract that requires the seller to pay a former advisor, typically an investment banker, for a specified period of time after the closing of the transaction. The purpose of the tail is to incentivize the advisor to continue to work on the deal and ensure its successful completion.
How long does a tail typically last?
Tails typically last for one to two years after the closing of the transaction.
Who is typically eligible for a tail?
Investment bankers who have worked on the deal are typically eligible for a tail. In some cases, other advisors, such as lawyers or accountants, may also be eligible.
What are the benefits of a tail?
Tails provide an incentive for advisors to continue working on a deal after it has been completed, which can help to ensure its success. Tails also allow advisors to share in the upside of a successful transaction.
What happens during an economic downturn:
- Buying cycles elongate
- Customers cut discretionary spend
- Multiple levels of approvals happen at targets, slowing down the process
- More competitors start searching for the same deals
What you can do:
- Specialize in what you’re best at – talk about what it means to specialize
- Pick an industry and work on addressing critical pains where they
- Make things easy to buy
The time between getting a financial request and sending the information can be critical.
- It shows that you're organized and prepared.
When a company is considering acquiring another business, one of the first things they're going to want to see is that business's financials. Having your financials in order shows that you're organized and that you know what's going on with your money. This can give the acquirer confidence that they're not buying a lemon.
- It makes due diligence easier.
Another reason why it's important to have your financials in order when you're being acquired is that it makes due diligence easier. Due diligence is the process of investigating a potential acquisition target to make sure that it's a good fit for the buyer. If the acquirer can't get a clear picture of your financials, it could scuttle the deal.
- It can help you get a better price.
If you're able to show potential acquirers that your business is in good financial health, you may be able to negotiate a higher price for your business. This is because buyers are often willing to pay more for a business that they perceive as being low-risk.
- It can make the acquisition process smoother.
Having your financials in order can also make the actual acquisition process smoother. This is because there will be less paperwork and red tape to deal with if everything is already in order. This can save everyone involved a lot of time and headaches.
- It gives you peace of mind.
Finally, one of the best reasons to have your financials in order before being acquired is that it can give you peace of mind. Knowing that everything is in its proper place can help you relax and enjoy the ride, secure in the knowledge that you're prepared for whatever comes next
- It shows you’re running a good business that doesn’t require a lot of financial clean up or manufactured earnings
Considering a sale is a very personal decision for a business owner. You've spent your life and energy building a business and now you've decided to consider a merger or acquisition. We get it - we've helped hundreds of firms sell and we're sharing what we've learned and what it takes to start a process.
- What is the current market value of your firm?
You'll need to know how much your firm is worth before you can start shopping it around. There are several ways to value a tech-enabled services firm, so you'll want to speak with a financial advisor or business appraiser to get an accurate estimate.
- What are the potential buyers interested in?
When you're selling a tech-enabled services firm, it's important to understand what potential buyers are looking for. Are they interested in the technology itself, the customer base, or the team? Knowing what buyers are interested in will help you package and sell your firm in the most appealing way possible.
- How much debt does your firm have?
If your firm has a lot of debt, it may be difficult to find a buyer who is willing to take on that liability. You may need to restructure your debt or negotiate with creditors in order to make your firm more attractive to potential buyers.
- What are the terms of your current contracts?
If you have any long-term contracts in place, potential buyers will want to know about them. They'll want to know how much revenue the contracts generate and whether there are any early termination clauses that could allow the buyer to get out of the contract if they're not happy with it.
- What is the expected growth trajectory of your firm?
Buyers will want to know whether your firm is growing quickly or slowly, and whether that growth is sustainable. They'll also want to see evidence that your team has a plan in place to continue growing the business.
- What are the margins like for your products and services?
Your potential buyers will want to know how profitable your products and services are. They'll also want to know whether there's room to increase prices or cut costs in order to improve margins.
- What is your customer churn rate?
Your potential buyers will want to know how often customers cancel their subscriptions or stop using your products and services. A high customer churn rate could indicate that there's something wrong with your product or that customers are unhappy with your service levels.
- Do you have any patents or other intellectual property?
If you have any patents or other forms of intellectual property, potential buyers will want to know about them. They'll want to know what rights they would have to use that IP if they were to purchase your firm.
- What do you want to do post transaction?
Sell-in vs Sell out. We have a podcast on this topic, listen here: https://www.revenuerocket.com/podcast/selling-in-vs-selling-out/
Will I hit my revenue and profit goals with organic growth alone?
M&A is the fastest path to growth
What is my strategy in acquiring another firm?
Will this expand revenue, add new services, bring new people, or add a geography? How will this impact channel relationships? What are the potential benefits of an acquisition for my company’s growth and success?
Do I have the right team in place and is it’s culture defined?
Will my leadership team be able to lead a new group? What type of firm do we need to find so our cultures can blend?
Do I have the financial capability of doing a deal? How can I ensure that I have sufficient capital (cash, debt, equity) available to finance the acquisition without putting my company in a vulnerable position
How can I mitigate the risk of a deal?
What type of due diligence will we have which decreases risk while still moving forward in a deal?
What outside team do I need to ensure a deal is done that’s win-win for all.
M&A advisor for sourcing, deal making, negotiation, due-diligence and being the bad guy on tough conversations. Lawyer for contracts.
Keep a steady hand on the tiller. We're talking about the importance of making decisions as an IT Services leader - yes you read that right! We often see struggles and delays in decision making in business which can get in the way of growing and prospering. Listen as we unpack decision making and how to keep your business moving forward.
Origination: research, outreach & marketing – we’ve got a team of dedicated researchers finding your list, dedicated outreach team contacted buyers & sellers and supporting it with marketing
Deal Flow & Negotiation: Moving a deal forward, creating an LOI and negotiating a purchase agreement – all the things that happen to move a deal through the pipeline).
Financial Analysis: Valuations, Cash flow analysis, deal support
Due Diligence: where we verify that the information provided is correct – contract analysis look at top 10 to see if they are worth continuation, invoices reconcile to the cash you actually receive, quality of earnings (QOE)
IT Services customers today are expecting experts in their market. IT Service providers should pick one vertical market and be the dominate player in that market, aligning with your technology specialty.
When you pick a vertical market you:
- Narrow your marketing focus to companies that need your services allowing for better leads
- Build referrals and references of like-minded businesses that will recommend your business
- Concentrate sales efforts on deals you know you can win
- Set yourself and your business up for a premium valuation and successful M&A
"Birds of a feather fly together."
Why should you use an industry specific advisor when entering into an M&A process:
1. Industry Specific Knowledge
An industry specific M&A advisor will have a deep understanding of the trends, challenges, and opportunities that are unique to your industry. This knowledge can be invaluable in helping you to identify potential acquisition targets and negotiating the best possible deal.
2. Access to Key Players
An industry specific M&A advisor will also have a network of key contacts within your industry. This network can be extremely helpful in identifying potential acquisition targets and getting access to the information you need to make an informed decision.
3. Deal Structure Expertise
An industry specific M&A advisor will also be an expert in deal structure. This means that they will be able to advise you on the most tax-efficient way to structure your deal, which can save you a significant amount of money.
4. Negotiation Skills
An industry specific M&A advisor will also have a wealth of experience in negotiation. This experience can be invaluable in helping you to negotiate the best possible price for your acquisition target.
5. Exit Strategy Planning
An industry specific M&A advisor will also be able to help you with exit strategy planning. This is important because it will ensure that you are able to maximize the value of your company when you eventually sell it.
6. post-Acquisition Integration
Finally, an industry specific M&A advisor will also be able to help you with post-acquisition integration. This is important because it will ensure that the acquisition is successfully integrated into your business and that all of the synergies are realized
In this episode of talking about enterprising values, the team will be discussing:
- Size of companies
- Revenue and ebitda thresholds
- How deals are shaped up in the IT services world
Today, we're talking about cash-free debt-free, and what it means in M&A:
- When an acquirer buys another company, the transaction will be structured such that the buyer will not assume any of the debt on the seller's balance sheet
- The buyer will not get to keep any of the cash on the seller's balance sheet.
- Most M&A deals are negotiated on a cash-free and debt-free basis.
- The seller keeps all cash and pays off all debt at the time of the sale of a business.
In this episode, the team talks through:
- Why sales people are important
- What a company needs to think about before hiring a sales person
- What you need before hiring a sales person
- The costly mistakes that can be present when hiring sales people and what to look for in your hire
When you're talking about M&A for your life's work, it's a an emotionally charged affair and having an advisor by your side can be the difference between getting a deal done, and it falling through.. In this episode we are mainly discussing the role of what an m&a adviser is in selling and buying IT services companies.
Here's what we're discussing in this episode:
Why sales are difficult for IT services companies
- Lack of productized offerings
- Deep understanding of customer issues requires skills
- Easily mismatched client needs to ability to deliver
- Sales enablement
When do you need a sales person?
When do you need a sales team?
What type of Sales roles should you hire
- Hunter
- Farmer
- Business development rep
What’s needed to make them successful
- An ideal prospect profile
- List of accounts to attack
- Productized offering
- Grinding, minding, finding
If you’re going through an M&A process, should you hire?
As we look forward to 2023, the team discusses important topics to pay attention to, including:
- Deal-flow and M&A
- Sell-side opportunities
- Shifts in valuations in the marketplace
- summary of macroeconomic environment.
Having detailed information on your customers and their impact on your business is paramount before, during and after a business combination.
Here's what we cover:
- What to customer data do you share with a buyer before a signed LOI
- What will a buyer look for within your customer data?
- Compiling customer data
- Customer data hygiene
- Put yourself in the buyers shoes: what customer data would you want to see?
Before beginning an M&A process, consider an adjacency growth strategy. We define adjacency strategies as taking what you do best and expanding into an adjacent opportunity that’s one degree of separation from where you are.
Check out our blog post on The Adjacency Growth Strategy: https://www.revenuerocket.com/adjacency-growth-strategy/
It all starts with personal happiness and growth. The team weighs in on the importance of happiness in your personal life and how it translates into a successful business.
In this episode of Shoot the Moon, we're diving into consistency during a merger or acquisition.
M&A Deal Financing. Here's what we discuss:
- SBA Loans
- Debt Financing - good and bad
- Seller Notes
- Cash
- Equity
- Earn Outs
- What's the right size deal?
- Buyer and Seller Transparency
In episode 112 of The Shoot The Moon Podcast, we are lucky to have Chelsey Nord with us to discuss Strategy and culture in the IT Services Industry, and specifically, why it matters. Listen further to dive into:
- Cultural Definitions in a screening call
- Cultural Alignment & M&A
- Losing Culture in the depths of M&A
Meet our Director of Strategy, Chelsey Nord! Chelsey joined Revenue Rocket as a passionate, and strategic professional with experience in management consulting and advanced data analytics. She is devoted to helping teams determine how to win, and build the necessary culture and climate to execute their strategy. Chelsey specializes in building relationships, creating strategy development, and leveraging advanced analytics to drive business results.
Here's what we're diving into in this episode:
- What is culture and why it matters?
- Strategies in Customer Relationships
- Culture & IT Services Companies
- Changing Culture within your organization
Organizational culture has a significant impact on employee success, retention, and performance.
Digging into growth potential and where an IT Services company could be as it relates to employee growth.
What it means to have the right processes and people in place in your tech company.
We often use the term ideal prospect profile (IPP), which is something as a buyer or seller matters a great deal. Before outreach to a potential seller, decide what attributes are the most important to you when looking at an ideal company to buy. If you are in a position to sell your business, think about the ideal buyer and what the ideal attributes are. Having your idea prospect profile ahead of time and then managing outreach is critically important.
Here's what we're covering in this episode of Shoot the Moon:
- M&A Readiness in the context of an ideal prospect profile
- The big 3 for Fit: Cultural, Financial, and Strategic
- What is an Ideal Prospect Profile (IPP) and what to consider
- How important is geography?
- Looking at size and where it fits
- Financial Conditions
- Management intention
- What we consider "Bonus Fits"
- Making sure you're in the right category
- Defining this without guidance - who is going to help you reach out to these prospects?
In this episode of Shoot the Moon we're discussing what we've been seeing lately for completed deals regarding trends, multiples, and insights into the categories we serve. These categories include Managed Service Providers (MSPs), Cybersecurity Firms, Custom Application Developers, Dev Ops, and Digital Transformation firms.
Welcome to Buy-Side 101! We're doing an overview of buy-side M&A in this episode because it's come up a lot lately with our clients, prospects, partners and more. Here's what we're talking about:
- Buy Side programs are the fastest path to growth
- Have the right team and processes in place
- Criteria for Buying a Business (Why are Cultural, Strategic, and Financial fit important)
- Why a Buy-Side M&A Advisor is important
- What other advisors do you need to bring to the table to get a deal done (Legal Advisor, Accounting Advisor...)
- Timelines & Expectations (Origination, Due Diligence...)
Are you aware that in an M&A deal, there's a number of stop gaps and information requests that move buyers through a process, allowing them to gain comfort in putting forth an offer? In this week's episode of our Shoot The Moon Podcast, the Revenue Rocket team discusses what's warranted for pre-loi, diligence, and support of getting an offer, versus post-loi due diligence motions that are needed in order to validate and certify cash flows. The team also reviews potential fear-oriented questions that may arise for buyers and sellers during the M&A deal process.
Typically when a firm goes to market there will be a letter of intent that is engaged upon. The letter of intent outlines the details of the M&A deal including timelines, terms, financials etc. Sometimes, when you enter into an LOI stage, there is something that can happen called a re-trade. We're talking about the benefits and pitfalls of a re-trade and what it means for all parties involved in an M&A transaction.
In this episode, we are covering the importance of a detailed, repeatable process when it comes to maintaining timelines during an M&A process. Setting good expectations relating to preparedness, responsiveness, and inspection before, during and after a business combination benefits all parties for a win/win outcome.
Understand how deal structures that involve seller financing can benefit both buyer and seller when it comes to making the post combination financial plan an obtainable win/win.
How does profitability impact M&A? Where does your firm stand with end of year profit with Q4 approaching? One of the most important principles of your IT services firm should be profit and in this episode we're diving into why it so important.
We made it to 100 episodes! Thank you to all o ur listeners for your loyalty and feedback. Listen to our 100th episode as we dive into Working Capital and some of our favorite episodes we've put out for you.
Tune in as the Revenue Rocket team discuss what a seller should consider when evaluating a buyer!
Let's dive in to how the rising costs of money are impacting M&A and the challenges it poses to things like valuation. Where does debt vs equity play a role and how will these macro changes impact the volume of deals and the structures.
Revenue Rocket's Director of Finance, CJ Strehl sits down with us to review the changes to the economy and impacts of the rising costs of money. Learn how we are navigating these impacts in deals both domestic and foreign along with our thoughts on the continuing trend.
Search Funds: What are they and why do they matter to a seller? In this episode, we cover what happens when you encounter a search fund as a seller and what to expect.
Human capital: retaining talent before, during and after a combination. Listen in while the Revenue Rocket team discusses the do's and don'ts of employee retention.
Considering a sale? Listen to a few other recent episodes where the team discusses Seller Readiness:
- Selling In vs. Selling Out
- Balancing Multiple Offers as a Seller
- Sellers: Timeline Expectations for an M&A Deal
- Seller's Perspective: Due Diligence
It is very common that new, undocumented liabilities appear post the closing of a transaction. Some due to timing and others due to issues with transparency within the selling organization. In this episode we will discuss the mechanism we put in place to account for these unplanned expenses.
Some questions we answer:
- What is a true-up and some examples?
- What are representations and warranties? Is that an entirely separate issue?
- Sandbag clause in reps and warrants
- What’s the difference between hitting an earn-out and a true up?
- What remedies does a buyer have if there are unnamed liabilities?
- How does the buyer minimize risk?
- Are there insurance policies that can aid smoothing out potential liabilities
More covered:
- A few scenarios that we’ve encountered in the past.
- Why they happen
- Not everyone is involved in the M&A process (example: sales may not have disclosed a client dispute to leadership)
- We discuss this in detail in previous episodes (32 and 33 who should be involved)
- Thought to be immaterial but liability grew
- How we plan for the unplanned
- Holdbacks (amounts kept from closing disbursements for a period of time)
- Ensure proper due diligence is performed (special attention to aging AR and AP)
- Deep evaluation of employee related issues (potential future litigation)
Now what:
- Have a well documented process and threshold for accessing holdback funds
- Identify any errors in the reps and warranties - purposeful or otherwise
- Have a clear understanding of the communication requirements (within X days via Y method)
Summary:
- These unplanned liabilities are common
- Have a plan to mediate the exposure
- Be diligent in your discovery, reps and warranties
- Be ready with a plan, including a holdback
Revenue Rocket can help with undisclosed liabilities before, during, and after a transaction. Connect with us to set up a no-obligation introductory call with our team: info@revenuerocket.com
In June (2022), a few members of the Revenue Rocket team travelled to San Francisco for the RSA Conference. The RSA Conference is a source for timely insights, thoughtful interactions, and actionable intelligence designed to help cybersecurity professionals continually strengthen their organizations. Listen as the team dives into takeaways from the event, insights into the Cybersecurity industry, and where the industry is headed.
Revenue Rocket has been helping business owners buy and sell for over 20 years. Whether you are looking to acquire a business or looking to be represented for sale, here is a sampling of firms we’re representing today. We are also happy to talk about a custom program for you. Check out our current deals: https://www.revenuerocket.com/current-deals/
In negotiating fee structures, a business owner should consider the goal he or she seeks to achieve in hiring an advisor. An owner looking to sell a business as soon as possible and an owner willing to wait longer for the highest bidder will likely have different fee structures. Listen as we dive into what fees to expect and why before, during, and after an M&A deal.
In this episode, we're walking through the differences between selling-in and selling-out in an M&A deal. If a buyer wants the seller to sell-in, what does that mean for the executive team and why does it benefit the combined entity? If the seller is looking to sell-out, how does the buyer manage this transition? What do deal structures look like for each scenario? Listen as we answer all your questions about selling-in vs selling-out.
We're answering a few important questions for sellers in this episode!
- What’s a lockout in an LOI?
- We’ve seen an example of a 2 week ‘close out’ period in a LOI. Being on both sides of the table, is this feasible?
- What’s the importance of getting an offer to balance the process?
- Once you have an offer in place what should sellers consider? Is this around EV, deal structure, both?
- What happens if you back out of a signed LOI for a better offer?
In this episode we're diving into the timelines for an M&A deal and what to expect if you're considering the sale of your IT services business. We'll cover readiness, pipeline development, LOIs, and due diligence from the seller's perspective.
In this episode we're talking about the keys to successful deals + learnings, bringing in our own findings from recent transactions. We'll walk through a few of recent deals: what worked well, what didn't, and ultimately how the deal got closed.
In summary:
- Everyone deserve a break
- Taking a break is meant to provide needed rest - not work remotely
- Reset your work/life balance
- Educate not dictate upon return
For more information on personal perspectives listen in on our “luxury or perspectives” podcast from last year. You can access it and others at Revenue Rocket.com, Apple Podcasts or Spotify. Thank you for listening and we hope you start planning your “Step back”.
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Read our blog post on the importance of M&A Focused NDAs here.
The need for NDA’s are critical and the ways they are beneficial / required are endless. When working with your advisor or managing a deal on your own be sure to protect your confidential information BEFORE engaging in any discussions.
For more information on preparing for a transaction check out our available resources at revenuerocket.com
Considering a merger or acquisition but not sure where to start? Revenue Rocket can help! Reach out for a free, no-obligation introduction call: https://www.revenuerocket.com/contact-us/
The 11th hour is a tough one for both sides and while we always work hard to circumvent any objections or emotions it is important to both the seller and buyer to remember why they started the process, signed the LOI and why the market will see value in what they are going to build together. Nothing is perfect but keeping a clear and optimistic mind can ensure that no matter the outcome you made the best decision for your company, shareholders and ultimately the marketplace. Here's what is covered in this episode of Shoot the Moon.
Let's talk about the surprises a buyer or seller might expect to see at the 11th hour:
- Last minute comps that question valuations - give an example
- Additional charge backs/add backs - give an example
- Increased holdbacks on account of newly discovered (or perceived) risk
- Leadership hesitation - may not want to stay or leave
- Funding challenges (cost of capital or timing shifts)
Now let's shift to a discussion on emotional implications that enter a deal at the “11th hour”:
- Does the seller really want to sell?
- Is the buyer second guessing the accretive benefits of the combination?
- Does the deal feel like it's the right move for the employees and owners?
- Is it the right timing, or would we get more if we waited?
- Can we really afford to take this on right now?
Keeping your cool during these surprises and emotions is often the most important if the parties want to make it to the other side of the “11th hour”.
- Allowing these all too common attributes to create frustration will only harm the chances of completing a transaction.
- Our position as advisors is to ensure that we are thinking like both the seller and the buyer regardless of who we are representing. This gives us the insight to see these 11th hour hurtles entering the process weeks if not months before close.
- Allow the advisors and or attorneys to act as mediators where possible. Trying to sell your new position or justify your emotion will only further irritate the other party who has spent months and considerable cash getting to this stage.
- Remaining optimistic vs frustrated will ensure your team doesn't lose interest and the more negativity in a deal the less likely it will come to a successful conclusion.
For more information on getting to a successful close check out our resource section of the revenuerocket.com website. Thank you for tuning in to another episode of Shoot the Moon!
In every deal we do, we spend a significant amount of time furnishing our clients' data room and ensuring full disclosure on all administrative business functions. The collection and inventory of these items are then transformed into a schedule within the SPA (stock purchase agreement) or APA (asset purchase agreement) known as the “Disclosures”. These items are the source of truth for everything a buyer needs to know and are acknowledging the existence of the items listed. These disclosures are usually referenced within the representations and warranties of the definitive agreements.
Types of things we see in disclosures:
- Material customer contracts
- Litigation (present, pending or imminent)
- Employment agreements
- Known customer issues
- Technology issues
- Financial liabilities
- Conflicts of interest
- Affiliate agreements
- Investor commitments
For more information on disclosures and other items impacting your representations and warranties check out our resource section on the revenue rocket website. Or reach out anytime at info@revenuerocket.com
Here are a few things to consider when understanding the buyer's motives, economics and resources:
- Why are they valuing your business as they are?
- Does the buyer's board of directors share the passion and commitment of a successful combination
- What is the currency and who is funding it?
- Operating capital
- Capital formation
- Debt
- Equity (can the cap table afford it)
- Lender details and expectations
- If outside money is being used, have you met with the stakeholder to understand their willingness to fund the deal and what the ROI is for them?
- Is the cash in hand (can you see it on the balance sheet)?
- Why work with an M&A advisor? Best interests, can be the bad guy…
Summary:
- Proof of funds takes many shapes and sizes
- Seller needs assurances of the resources
- Work with an advisor like Revenue Rocket
In today's episode, we are talking about the due diligence process from the perspective of a seller and what to expect.
What's in before an LOI:
Corporate performance
- Market share
- Leadership
- Technical IP
- Brand and intangibles
- Key accounts
Financial performance
- Revenue
- Gross Margin
- EBITDA
- Operating Income
Market conditions
- Market share
- Comparative valuations / deals
- Transaction motives
Once a seller has disclosed with a degree of accuracy these 3 main metrics (with several sub metrics) it is acceptable to expect a letter of intent (LOI) surrounding a combination. In that letter a seller should expect a valuation (at least a range), a methodology for getting to the valuation (so that adjustment to the purchase price are based on actuals vs a change in perceived value levers), a list of terms including the currency (cash, equity, earn-out / or a combination of all) as well as a detailed allocation of where the IP value sits and how it is measured.
Post LOI due diligence:
An extensive list of disclosures, documents, and artifacts that verify the information gathered prior to the execution of an LOI.
Below is a sample of the information gathered post LOI but ahead of definitive agreements (whether asset purchase or stock purchase):
| Organization | | Articles of Incorporation | | Company bylaws | | Organization Charts | | Capital structure | | Certificate of Good Standing from state in which company is incorporated | | List of regions in which the company is authorized to do business | | List of regions in which the company has employees, contract relationships, leases facilities, or transacts business | | List of any names (and documentation) under which the company may operate | | Financial Items | | Financial statements for previous three years | | Company/Auditor correspondence from previous three years | | Credit report | | Capital budget | | Strategic planning documents | | Financial schedules | | Contingent liabilities | | Indebtedness | | Inventory | | Accounts receivable | | Accounts payable | | Depreciation and amortization procedures and accounting methods in previous three years | | Financial model containing revenue, fixed and variable expenses, and gross margins | | Analysis of internal control procedures | | Physical Assets | | Listing of fixed assets and their respective locations | | Any filings for Uniform Commercial Code | | Equipment leases | | Transactions relating to major capital equipment in previous three years | | Real Estate | | Detailed listing of business locations | | Copies of | | real estate leases | | mortgages | | deeds | | titles | | surveys | | zoning approvals | | variances | | use permits | | Intellectual Property (IP) | | Listing of patents (domestic and foreign) and respective applications | | Listing of trademark and trade names | | Listing of copyrights | | Documentation | | technical know-how | | agreements regarding inventions | | licenses or assignments of IP | | patent clearance | | Listing of any claims or grievances against the company regarding IP | | Employees | | List of employees and associated employment agreements (noncompetes, nonsolicitations, nondisclosure, etc) | | Resumes for management and key managerial personnel | | Employee handbook outlining key benefits and holiday, vacation, and sick leave policies | | Plan outlines of company-sponsored retirement plans | | Documentation of any employee issues in previous three years (harassment, discrimination, etc.) | | Listing of any workers compensation claims | | Lisitng of unemployment claims | | Documentation of employee stock option and stock purchase plans information | | Licenses and Permits | | Copies of government licenses, consents, or permits | | Correspondence or documents relating to proceedings of any regulatory agency | | Environmental Issues | | Environmental audits relating to properties leased by the company | | Listing of hazardous materials used by company in operations | | Documentaiton of company procedures relating to disposal of hazardous materials | | Listing of environmental permits and licenses | | Correspondence relating to EPA or other regulatory agencies | | Listing of environmental litigation of investigations or possible superfund exposure | | Listing of contingent environmental liabilities or indemnification obligations | | Taxes | | Federal, state, local, and foreign income tax returns for the last three years | | States sales tax returns for the last three years | | Audit and revenue agency reports | | Any tax settlement documents for the last three years | | Employment tax filings for three years | | Excise tax filings for three years | | Any tax liens | | Material Contracts | | Listing of all subsidiary, partnership, or joint venture relationships and obligations | | Contracts between the Company and any officers, directors, 5-percent shareholders or affiliates | | Loan agreements, bank financing arrangements, line of credit, or promissory notes to which the Company is a party | | Security agreements, mortgages, indentures, collateral pledges, and similar agreements | | Guaranties to which the company is a party | | Installment sale agreements | | Distribution agreements, sales representative agreements, marketing agreements, and supply agreements | | Letters of intent, contracts, and closing transcripts from any mergers, acquisitions, or divestitures within last five years | | Options and stock purchase agreements involving interests in other companies | | Product or Service Lines | | Listing of all existing products or services and products or services under development | | Correspondence and reports related to any regulatory approvals or disapprovals of any company's products or services | | Summary of all complaints or warranty claims | | Summary of results of all tests, evaluations, studies, surveys, and other data regarding products or services | | Customer Information | | Listing of the company's twenty largest customers in terms of sales over the previous three year period | | Supply or service agreements | | Description or copy of the Company's purchasing policies | | Description or copy of the Company's credit policy | | Schedule of unfilled orders | | Listing and explanation for any major customers lost over the last two years | | Customers by ZIP trailing 90 days | | Average Order Value by ZIP | | Description of the Company's major competitors | | Litigation | | Listing of all pending litigation | | Description of any threatened litigation | | Copies of insurance policies | | Documentation relating to any injunctions, consent decrees, or settlements | | Listing of unsatisfied judgments | | Insurance Coverage | | Listing of the Company's insurance policies | | Listing of the Company's insurance claims history for past three years. | | Service Providers | | Listing of all law firms, accounting firms, consulting firms, and similar professionals engaged by the company during past five years | | Marketing Awareness | | Documentation of articles and press releases relating to the company within the past three years |
In summary:
- Be prepared to share enough information to determine your worth
- Ensure the information is accurate and defendable
- Be prepared to share more information as requested in each category
- Be certain your comfortable with the valuation methodology (this is typically what does not change between LOI, definitives and close)
- Work with an advisor to ensure you are ready and able to support a transaction without interrupting operations and the business overall.
Between an LOI getting signed and the execution of definitive agreements, buyers enter into the due diligence phase. In today's episode we are talking about the due diligence process from the perspective of a buyer and what to expect as a buyer.
We spent the last 12 months in an accelerated market, executed dozens of combinations, advised dozens more on getting ready for a combination and here is what we have boiled it down to, if you're looking to get a deal done in the next year.
1. Be market ready
The truth about market readiness is knowing where you fit. Whether selling or buying, understanding what you are looking for within the market and understanding your value to the party is the true sense of being market ready
2. Solid financial performance:
We always encourage our clients to undergo audited financial statements, maintain solid, timely tax reporting and payments as both buyers and sellers are always going to look for third party validation and understanding on prepared financial statements.
3. Look ready:
Fit and finish carries a lot of weight when it comes to market perception. After all, you want the right people at the table when you are selling (or buying).
4. Be realistic when determining valuations:
The hardest part of mergers and acquisitions is determining what each party is worth.
Working with an advisor like Revenue Rocket will help you understand those levers and value streams to ensure that both sides have a robust understanding of the value that will come from the combination and the price to pay for it.
5. Be open to creative deal structures:
The reality behind deal structures is that in order to obtain the best fit or highest valuation, or most attractive exit, or most attractive retention program you will need to be open to all types of currency, terms and timelines.
Strategic readiness:
Knowing when to enter into a process to buy or sell is likely the most important part. Allocation of resources, financial planning and operational distractions need to be taken into account. At Revenue Rocket we evaluate a client's strategic readiness based on several attributes:
- Why is the company looking to sell or buy? Growth or survival
- Does the buyer or seller have their priorities in order?
- Are realistic expectations in place?
- What type of deals will be considered?
- Will the leadership team stay post close and if so why?
- Has the client fielded any interest so far?
- Has a process failed in the past and if so why? (We have covered this in Episode 61- your deal fell apart now what which you can find on our website)
Operational readiness:
When a company is in a process it is important to plan for distractions but also ensure that the performance of the company maintains a positive momentum regardless of additional workload associated with the process. Financials need to be in order, tax returns up to date, audits complete (in some cases), product and market positioning is well known and that the intended outcome is well documented and realistic.
- Here are a few operational readiness items that always surface during a process:
- Does the company have a data room and is it populated
- Has a valuation exercise been vetted and tested
- Are the third party support services onboard and available
- Lawyers
- Accountants
- Tax experts
- Advisors
- Are the facilities and leases ready
- Do you have a solid understanding of charge backs and other reps and warranties that will come to light during due diligence
Work with an advisor to help you get ready!
Matt Lockhart, Revenue Rocket EVP is taking over this week's podcast as the "new guy." Matt is the newest member of the Revenue Rocket team after being an operater of a company Revenue Rocket helped with their M&A strategy. Listen as he talks about his lens from going from being an IT Services Provider to an M&A Advisor.
Check out our blog post on The Importance of Marketing during the M&A Process: https://www.revenuerocket.com/the-importance-of-marketing-during-an-ma-process/
Stay focused through the end of the year and Happy Holidays from your friends at Revenue Rocket!
Today's deal structures are continuing to evolve in an effort to attract sellers and maximize valuations when justifying accretive business combinations. The use of equity, employment agreements and bonuses are on the rise as buyers secure deals through sweetening the pot. That said the “cash is king” still holds water as sellers are not always sold on the combined business outlook or even just stability of the global economy and taking your returns at close appeals to many, especially when the sellers are not looking to stick around post close. In this episode we will talk about the levers we are seeing in deals these days and how buyers and sellers are reaching alignment.
Seller note:
An owner of the business act like a bank where the owner lends the buyer money that thy are going to pay over time. This would also include interest that is paid over time with a higher interest rate than a typical bank. This is a way for you to receive the money from selling the business over time by providing financing to the buyer. A seller note is typically not contingent on the performance of the business.
Equity:
Using stock as a means of currency in a deal is not new but what is starting to pop up a little more than usual is the use of equity in the form of ESOP (employee stock option plan) and warrants as a means to retain leadership, management and even contributors. In today's job market the value of talent is even more important as employee retention is under pressure across all industries.
We are also seeing the traditional use of equity for things like earnouts as buyers look to preserve cash for growth / operations by increasing the value at a later date with some committed or liquidible buyouts in the future. These scenarios are seen less these days as the consolidation is in full swing and deals are almost always competitive.
Employment agreements:
When the sellers are tied to a deal post close we often see lofty employment agreements make their way into transactions. The agreements often off-set some of the seller buybacks and business expense carve outs that the original owners had in place as part of a lifestyle embedded into the corporations operating expenses (condos, boats…) People being sold on selling need assurances that life post close on a personal level will improve. These employment agreements will often include large cash bonuses and at times have limited deliverables. All in all it is a form of seller financing. While we are not opposed to these types of levers being used we do ensure that the parties account for them in a combined proforma and that the deal is still a win / win and affordable for both parties post close.
Cash:
Cash is still the most attractive currency in deal structures as the parties have a clear demarcation in the change of ownership and those selling have received the return on their efforts. All contributions moving forward are a derivative of future efforts and success. That said, we also see cash used in earnout scenarios and it is important for the parties to properly account for these payments in the forward looking financial planning of the combined business.
Earnouts:
We usually see earnouts play a role when a seller is looking to exit at a higher valuation than the buyer is willing to attribute to the deal. So the buyer attributes targets to go forward business that if obtained generate additional compensation to the previous owners. While this can be a common lever in deals it is also a common area where things fall apart in the future and you end up in conflict. A few things to consider when structuring an earnout are:
- Do the proceeds generated by the targets fund the earnout?
- Will the earnout generate bad behavior on the business development front?
- Should the earnout only be tied to net new business or should customer retention play a role?
Mergers:
Mergers are (usually) the combination of two similar sized companies into a single entity for the purpose of creating a new larger and hopefully more efficient company that provides a wider value to the market. A few characteristics that may accompany a merger;
- Typically leadership from both companies will remain post combination
- Financing if required will be tied to the combined entity
- Balance Sheets are combined
- P&Ls are integrated but reflect savings in redundant areas like administration
- Often involve companies in the same market but different categories of service/products
Acquisitions:
Acquisitions are in most cases a larger entity acquiring a smaller one for the purposes of accelerating growth or filling a gap in an existing offering. Acquisitions come in lots of different structures but in most cases involve the acquiring entity purchasing all the stock of the acquired entity. The surviving entity is typically the acquirer and the combined new company normally retains its existing leadership while the leadership from the acquired company are integrated into the business or exit entirely. A few characteristics we typically see;
- Larger companies buying smaller ones
- Companies acquire a product or service missing from their current offering
- Companies acquire a competitor and their market share.
- Companies selling to a financial buyer as part of growth financing or an exit
- Companies looking to expand into new geographies
- Leadership doesn't always stay post combination
Currency (cash & stock):
In both merger and acquisitions the parties can and typically do leverage a combination of currency to finance the deal. As an example equity could be used to offset cash needs in the business, which prolongs liquidity for prior owners but usually provides a premium. Cash is still king in many transactions and is often the most attractive when sellers are negotiating with financial buyers vs strategic. Cash may come with a series of traditional holdbacks and chargebacks but for the most part provides a clean demarcation in ownership post close.
Revenue Rocket has been an M&A Broker for over 20 years. Consider working with us on your next transaction.
Joining the Revenue Rocket team in this episode is Bradley Gross, a leading Technology Attorney specializing in Managed Service Providers (MSPs) to discuss M&A legal do's and don'ts for MSPs.
Cloud computing is still on the rise with the bulk of enterprises deploying a combination of solutions, such as multi cloud, hybrid cloud as well as migrations between platforms. These trends are driving demand for cloud service providers and we are seeing major increases in the need to establish scale through business combinations.
if you haven't incorporated the cloud you're behind.:
- 90% of mid and large enterprises will have deployed some form of hybrid cloud infrastructure.
- 93 percent of all organizations are adopting a multi-cloud strategy
- According to Gartner, the worldwide revenue from public cloud will grow by 17% this year to $266.4 billion.
- 60% of organizations will be using an external cloud provider’s managed services offering by 2022
- The Serverless Computing market is expected to grow with a CAGR of over 25% from 2021 to 2026.
Things to think about:
- You should be looking for ways to remain competitive and fuel growth
- Investment in the category has increased significantly since 2019
- Business combinations are an easy way to establish growth in this category
- Geographic expansion
- Category expansion
- Industry expansion
- RRCG is representing many buyers and sellers in this category
Mike Harvath 00:04
Hello, and welcome to this week's Shoot the Moon podcast here, broadcasting live and direct from revenue rocket world headquarters in Bloomington, Minnesota. As a reminder, revenue rocket focuses on helping IT services companies grow through facilitating m&a transactions and helping with optimizing growth strategies. Today, I've got my partner, Brian Barnett, on the call with me, Ryan, welcome.
Ryan Barnett 00:31
Hey, Mike, it's good to be recording a little podcast here. And I have a couple of ideas for you today. One of them to start with just trends that we're seeing in the market. And then what we've seen in the last couple of weeks in have been negotiating deal is that working capital and working capital calculations have been one of the big things that have cropped up as discussion points. So want to do a bit of education and understanding around working capital and where it matters in a deal. But Mike, just want to start out seems like in the second half of the year, things have changed a little bit on people willing to take a call when it comes to selling their business. As our listeners may know, we provide both buy side services to our clients, which means that we're helping companies acquire other companies and finding the right strategic cultural and financial fit for them, as well as helping companies sell, sell their companies. And we've seen a little bit of an uptick in people actually answering their phones, and, you know, typically says, hey, you're about the third or fourth person I've talked to this week. But once this conversation going, there seems to be people willing to consider selling their firm. And, Mike, I'm just kind of curious if you've seen the same and why you think that is.
Mike Harvath 01:57
Well, I you know, I do I have seen it, I think people are, you know, hopefully the dust has settled for much. For the most part due to the COVID pandemic. I think a lot of people had their business kind of up ended during the pandemic. And it took them a while to get it re established and reestablished in a way that was consistent and predictable. So I you know, I attributed some of that just the distraction of focusing internally on the business and then ultimately, getting back to, you know, more, little more breathing room, their ability to field calls. Certainly they focused on. It's not not that businesses have been necessarily seen a material downturn in the pandemic, although some did, and the kind of IT services space. But certainly what we're seeing and based on conversations lately 2021 has been a banner year, for most, most of our clients and our targets and, and folks that we've been talking to, on behalf of our clients. And there's certainly a lot more conversations going on about, you know, the merits of putting together a deal strategically and culturally. And people are more open to exploring those things right now.
Ryan Barnett 03:29
Yeah, you know, in general, I think we have seen these rising valuations. And in general, if you see that long enough, you finally say, hey, maybe this is the right time.
Mike Harvath 03:41
Yeah, I agree with that. Ryan. I think that's been fascinating. Certainly, I think the market will continue to consolidate through 21 and 22. and beyond. We certainly don't see an end in sight to the market. You know, the, the rather frothy market, which has driven valuations. And, you know, I think the more and more people have conversations about combinations, they realize sort of where the real market is for their business. And maybe they're open to having conversations that are somewhat more realistic for value now. And not just based on kind of what they feel the business is worth. So, you know, I mean, probably multifactorial reason why these calls are happening.
Ryan Barnett 04:29
And last question on this Mike is do you think that we are six months or seven months now into the year of a new political administration and and that may not be as favorable when it comes to taxes when it comes to business combinations?
Mike Harvath 04:49
Well, I I do think that you know, tax considerations are driving many sellers right now. We have we do have sell side mandates with clients that have come to us and Hey, the reason we're going to market now is because of a potential tax change. We hadn't planned to go to market yet. But we're coming to market now, because we're concerned about a tax change. Now, how real adtech genes is and when it'll occur, and if it'll occur, you know, I think is open for debate. I think there's plenty of room for the current administration to make moves on corporate taxes that don't involve changes to our material changes to capital gains, I think the fear that a lot of sellers have is that there's going to be a, you know, elimination of the of the capital gains tax or, you know, 9-10 percent increase in the capital gains tax, which, certainly, if you're selling a business that have a very material impact on the amount of money you get to keep, but I'm a bit of an outlier on that, I think there's gonna be other things like the buck tax and, you know, other levers that the current administration can pull to sort of increase, you know, taxes from corporations as well as enforcement activity that will occur in lieu of capital gains increases. And I think if the tax bill is going to get passed, it's probably going to have to look more like that. Because I do think that there are certainly plenty of people in Congress that are not going to be favor, favorably looking upon a capital gains increase. And certainly that'll be kind of a last resort type increase, I think, if they're going to get something passed this year.
Ryan Barnett 06:42
Yeah, exactly. That Well, that's it, it's, it's interesting, I think it's, overall, we certainly see the worry from our clients and companies coming to market, and that there could be radical changes. But I think no matter what the political environment, it's smart, to be cautious about how it goes, put it this way you have to put in, you have to incorporate taxes in order in the hole, when you're looking at your deal, and how to get that done. And that may change a bit, but you have to understand, work with your accountant on careful tax planning, and how that could impact the future.
Mike Harvath 07:21
Yeah, just to add that, I mean, it's a material thing, not only in the States, but certainly in Canada, we have a lot of listeners in Canada, and a lot of our clients are, frankly, in Canada. And this is similar around the world for global tax policy, there's structuring that you can do to be tax efficient in preparation for selling a business. And we certainly recommend that all business owners understand those options, and they understand those well in advance of selling maybe even years or, you know, many years in advance of selling, that's certainly the case. In Canada, there's some structuring that has to be put in place. So certainly structuring here in the US as it relates to your classification of a corporation to make it more efficient for selling a business tax wise, a small business, and particularly a services business. And so you know, you should be having those conversations with your accountant to make sure that you've done the early groundwork so that even if you're not ready to sell now, that you're you're in a position to do so when the time comes.
Ryan Barnett 08:25
Yeah, absolutely. And that's how I transitioned a little bit. The other topic that we had seen as of late is, companies, when you sell your company, there is typically a number of different transactions you can have. So, Mike, can you just explain to the audience something, you hear that cash free debt free? What's that mean?
Mike Harvath 08:49
Yeah, I mean, there's a couple things on structuring, we get a lot of questions about, you know, I want an asset deal or a stock deal, or I want, you know, all working capital to be a certain way. You know, we've talked about, you know, assets and stock deal before I can quickly address that, again here, which is for a tech services company, it really doesn't matter all that much. You know, I think in some cases, there's advisors in the market that give bad advice. Typically, these are accountants, they may be lawyers that are used to more you know, what I'll call asset intensive businesses, like manufacturing companies, or quick serve restaurants or, or even, you know, convenience stores and things like that, where they have a lot of assets and it does make a huge difference tax wise to a seller if it's a stock deal or an asset deal. In a technology consultancy, it really doesn't matter all that much. It has much more to do with the allocation of that purchase price and how its allocated to Goodwill or other asset classes. These kind of go hand in hand with working capital working capital. In order to sell a business you need to sell it as a going concern and the definition going concern would mean that it has enough working capital in the business to sell. A lot of sellers get advice from their advisors that they want to keep all of the assets in the business and try to, you know, sell the business with the liabilities. And that just doesn't really work. You have to have enough assets in the business and the appropriate allocations in the liability side of the business, in order for there to be enough working capital to operate the business by the buyer after the deal is done. And they don't have to be able to operate it assuming no revenue or you know, no profit, you know, blah, blah, blah for a long time, that you need to cover about a month's worth of expenses typically. And so understanding that clearly, is important. Now, most small businesses, most particularly IT services, businesses, if they're Runwell, are over capitalized, have more working capital than they need. And thus, the sellers can harvest some of that capital, or all of that excess working capital we call or the value in excess. Sometimes people use that term. Understanding what that working capital ratio is what's involved, what a buyer needs to run a going concern is important. Cash free debt free is not a very good strategy for the seller in a growing business. And the reason why that is, is because you have a lot of your asset, tied up in receivables. And this is particularly important if you're in a fast growth services firm. And it leaves too much capital in the business, or an excess amount of working capital, in our opinion in the business for the buyer. It also isn't very buyer friendly, because oftentimes, if someone does negotiate what we call a cash free debt free deal, it requires the buyer put cash into the deal in the first month to cover operating expenses. The theory is a good one. But it's one that doesn't always work perfectly in practice, because it assumes that that buyer is going to be collecting AR throughout the month. And that AR is going to fund operating expenses for payroll, which is a significant cost in an IT services, business and other expenses. And as much as that's true, and will be the case over time. They can't assume that they're going to be able to in a transaction, when things are changing with a customer base, that they are going to pay as consistently as they have up to that point, it will take a little bit of time for them to get used to the new buyer make sure that you know if there was changes and who they should pay that they've made those adjustments in their system, and it can create a little bit of a delay in collections doesn't mean they're bad, but just it's a delay. So we think it's a better idea to we have a combination of cash and receivables to cover off the liabilities and their curls in the business. And make it a little easier for the buyer to operate the business without putting cash in and be more faith and be more fair to the seller to take excess working capital out.
Ryan Barnett 13:27
It's really insightful and helpful. It's one of those areas that you don't necessarily think of until later in the transaction typically. That being said, as of late, we've seen a number of deals that have tried to look at cash early on in a negotiation. The factory we've even seen a bit of an attempt to calculate working capital before an ally. So we that's typically we don't see it that really when you start bringing cash in to the into the equation like when you are working through a deal.
Mike Harvath 14:04
Well, it's typically after the letter of intent, and it comes in through due diligence. oftentimes there's a comment in the letter of intent about adequate working capital, which is fine in more detail than that, or can specify a working capital ratio. But seldom does it get to a working capital peg as we call it, or the exact number until we're through due diligence, and it's part of the definitive agreement to begin to look at cash and working capital ahead of the letter of intent is premature. It's premature predominantly because working capital is a moving target, how much of it is in AR and cash and depending on invoicing cycles. How much money is left in the bank versus that has been paid out or is dividend out is a number that changes every month and it points in time throughout a month in a Typical cycle. So, you know, we think it's best practice to probably outline at a minimum that there'll be adequate working capital left in the business and excess working capital will be determined and able to be kept by the seller in the letter of intent. Or you can specify a working capital ratio or what some call coverage ratio into the letter of intent. And then the exact numbers calculated later and documented in the definitive agreement.
Ryan Barnett 15:33
Interesting, and then when you're talking about enterprise value, do you typically include cash?
Mike Harvath 15:40
No, enterprise value certainly will include adequate working capital. So back to this point, you know, it's a going concern, and it has enough capital to operate. That's what everyone wants. Now, that discussion about what's adequate is a negotiation. And, you know, some buyers want all the working capital that someone's had in the business over the last year, average or two years, and generally in small businesses, that is, that advantages the buyer, it's unfair to the seller. For all the reasons I've talked about before, we just had a conversation, the day we're recording this podcast, with a client that has, you know, $3 million in excess working capital and their balance sheet and cash. That's beyond what's needed to operate and run the business. From a working capital perspective. That should be the sellers money. It's not something that would be included in the transaction, typically. And so, you know, enterprise value, the way we see it is to define it as a going concern and then to be able to strip excess working capital. There's another reason for that it's not the way it is always in business valuations is that most businesses in IT services are valued based on free cash flow, and a multiple of free cash flow, not book value. There's certainly book value considerations and, you know, add the assets on the balance sheet in excess liabilities impacts book value. But in models that we run, we de emphasize the book value some, some people do evaluations and IT services completely disregard book value. We think at a minimum there should be a consideration. Because certainly if the business is under capitalized, that needs to impact valuation or impact a true up. Just like if it's over capitalized, the seller can harvest that money. More often than not, we see in the small businesses, if they're successful in growing, they tend to be over capitalized or have too much working capital, or excess working capital on the balance sheet. Pack close.
Ryan Barnett 18:12
And they're very interesting. It's a it's a topic that moves so much. It seems like it's something that doesn't necessarily get resolved until nearly the day of close. So I know when there's pushing and shoving on deals, we see this most often around working capital. Like is there just to wrap this kind of conversation up? Why is it such a tested item throughout?
Mike Harvath 18:42
Well, I think private equity firms have had a history of trying to take excess working capital to kind of cut to the chase on it on the guys that tried to do cash free debt free deals. That advantages the buyer and advantages a buyer that has capital to put into the business because almost all of these businesses, if it's done as cash free debt free, the buyer will have to float one month to expenses to be able to get through a collection cycle. They've for a long time private equity buyers required that they wanted to do that they would say we're gonna approach this deal as cash free debt free. Now I should say that all deals are generally debt free from a long term debt perspective, and if not, that, that needs to be reconciled with purchase price at the time of close or ahead of close and, and the only liabilities that really come by are come by past or what we call trade payables or or you know, putting some things on the balance sheet that would be appropriate for you to put there into liabilities like accruing for a payroll. So having an accrual for a payroll or a month of payroll is an appropriate best practice. When you're looking at working capital and working capital ratios, for example, I mean in IT services, it's the biggest expense. So the whole cash free debt free concept came out of capital market operatives that wanted to advantage or get their hands on more working capital and probably needed. And in a perfect world, if you had perfect receivables collection at 30 days or less, and you were not growing the business at all, then Caspi definitely could work and be fair. I think if you're if there's variables around the growth of the business, let's say the business is scaling and growing materially, which means you're continuing to grow month after month, and are your maybe your VSL your sales outstanding, or your AR Aging's are showing more than 30 days. In that scenario, it's always gonna advantage the buyer as it relates to kind of fair working capital. And we just don't know that that works out. We've even seen some buyers want the seller to clear the trade payables, which is completely we think a big land grab on on capital. And because, you know, working capital is sort of a not well understood principle. For most business owners. It's an area where people can take advantage of a seller, frankly, and you know, begin to subsidize their purchase price. And so it's probably a good business case to have a m&a advisor in the middle who negotiates working capital all the time, and can help you get your fair share of that excess working capital, or what I'd say all of that excess working capital that's not needed to run the business moving forward.
Ryan Barnett 22:02
Yeah, I totally agree. We're happy to help. And it's something that is core to every deal that we get done. Like this. That's all the questions I've got for you today. Appreciate you getting through this and I'll let you wrap it up.
Mike Harvath 22:17
Sounds great, right. So with that, tie a ribbon on it, hopefully enjoyed our conversation about working capital. Certainly if you have any questions about your own working capital, or how you would cap calculate a reasonable amount of working capital in your business pursuant to Sally be happy to advise you on that. Likewise happy to help you in any way we can on the m&a front or optimizing your strategy to grow. Hopefully you'll tune in next week we have a new podcast, coming to you from Minnesota. Talking about m&a and strategy for IT services reps, take care and have a good week.
Read more about our insights on Custom Application Development trends in our recent blog post: https://www.revenuerocket.com/custom-application-development-trends-outlook-end-of-2021/
One of the most critical functions in an organization is the first person of contact for enabling an M&A transaction. If your competitor calls you and wants to buy you would you entertain that conversation? Having a third party like an advisor brings in standard operating procedures, best practices, and the proper etiquette that is paramount to creating engagement and good outcomes.
Some key points Ashley and the team cover in this episode:
- Documenting outreach
- Framing up a discussion to present an opportunity
- Respecting the prospect's time and recognizing their tone
- Communication methods
- Best practices for follow up
- Business Development functions
- Revenue Rocket standards
Listen to the Shoot the Moon Podcast on Apple Podcasts or Spotify. Reach out to us for a no obligation introduction call at info@revenuerocket.com.
Tune in to Matt and Mike's discussion with John Schmelzeis from Microsoft's Global Partner Solutions group as they talk through the changes, focus and opportunities within the Microsoft partner program and how tighter alignment can lead to improved performance. Hear how Revenue Rockets SVP program perfectly integrates into Microsoft's renewed focus surrounding Advanced Specialization as part of their partner effectiveness measurements now implemented within the program. From awareness, to acquisition and new ways to work with the Microsoft team, you don't want to miss this episode of Shoot the Moon!
At Revenue Rocket a fair amount of our clients fit into the category of managed service providers or MSP’s as we in the industry refer to them. The category focuses on providing business and enterprise clients with predictable and scalable solutions for managing all facets of information technology (IT) within their corporate ecosystem.
Macro trends:
- Simplify the hiring and maintenance of internal IT teams (outsource)
- Continued enablement of the remote worker
- Scale when dealing with the job swap boom (increased churn in enterprise)
- Managing the continued migration to cloud and the complexities that come with it
- Hyper automation among key functions such as employee onboarding/offboarding
- Virtual service delivery (online tools and enablement) - Zoom erra
- AI and machine learning shift from buzz words to real world value
- Implementation and management of cyber security solutions
- New age testing and implementation of augmented reality (AR) and virtual reality (VR) solutions. 64% of brands have started to test the effectiveness of these solutions in the past 2 years.
- Expansion of VoiP solutions for staff connectivity outside of the four walls
- MSPs Interest in selling increased from 15% to 27% from 2019 to 2021
Closing remarks:
- Combinations are fueled by:
- The need to achieve new levels of economies of scale
- Increased costs related to required growth to keep up with demand
- Attractiveness to bolt on additional solutions to the existing portfolio
- Establishing or expanding diversity in target market segments (healthcare to manufacturing…)
- Valuations are up - no better time to exit (in some cases)
- Increased interest from financial buyers (PE, SPACs and more)
Be sure to read up on our latest blog post covering these trends and more on our website at
https://www.revenuerocket.com/msp-trends-predictions
We are often faced with the overwhelming influence from sellers to put aggressive weighting on financial forecasting when it comes to determining valuations. The reality is that while forecasting has a significant impact in determining valuations it doesn't always have a positive impact.
Points we discuss in this episode:
- Forward-looking performance of the company can be incorporated into earnout type structures
- Forecasts can shed light on new business lines maturing and becoming a more meaningful part of the financial picture
- Forecasts provide buyers with the information they need to make assumptions on a combined businesses performance
- Forecasts that are in line with historical performance are more likely to be weighted vs those with major spikes in performance
- Forecasts containing major reductions in OpEx to achieve a new degree of EBITDA need clear understanding and in many cases require some historical proof points to be considered in valuations.
- Forecasts with major upward shifts in revenue without any historical performance to support the improvement will almost certainly be discounted
- Forecasts are an important part of valuations when the combination currency is stock/equity. Mergers and acquisitions that are funded by stock almost always allow for a more aggressive valuation based on future performance
Listen to Shoot the Moon on Apple Podcasts or Spotify.
In this episode, we discuss what defines a competitive market and what are the markers to look for. Ensuring you buy right is critical to achieving the ROI on a combination and navigating inflated categories is especially important when structuring a deal.
Learn how Revenue Rocket is navigating these competitive deals with structured processes, accretive deal architectures, and refined and accurate forecasting for both the target company and the future combined company.
From finding the ideal target to making the offer, managing the process, and navigating the emotions that come with it. You don't want to miss this episode!
Revenue Rocket has worked with hundreds of firms to successfully complete transactions. We'd love to schedule an introduction with you and learn about your growth goals.
Reach out anytime: info@revenuerocket.com
Half of Revenue Rocket's business is organic growth strategy. We spend a lot of time with business owners looking to grow organically and utilize our SVP program. SVP stands for specialize, verticalize and productize and if you are not considering this methodology you're missing out on a lot of growth. The idea is to have all 3 of these components working in your business to effectively be in the top quartile for growth and profit realization. If you'd like to learn more about our SVP program, reach out to us or learn more here.
In this episode, we are focusing on productization. Productization is essentially bundling your services to look like products to enable your business to add higher value, get to market quicker with your customers and be more competitive.
Feature: something a project or service offering is able to do. For example, configuring a database, optimizing a cloud infrastructure set up to run faster.
Benefit: why does that feature matter? Ask yourself, how can our client make more money or how can our client save more money from this feature?
We have all been there at one point in both our personal lives and quite possibly in our professional lives. The nerve-racking and heart-racing introduction of a new intimate relationship. Yup, mergers, and acquisitions are intimate, exciting, and full of unknowns. Mix in a few missed commitments, some late-term learnings that were never disclosed and you have yourself a normal, typical, term of dating life, I mean M&A process. You get the point... in this episode, we will discuss the commonality between M&A and dating. From selecting the right match to making it past the first date to potentially the alter. Listen in as we navigate the parallel nature and uncomfortable situations that most certainly lay ahead.
Having your ducks in a row going into a process will ensure that expectations are met, that valuations hold strong through the process and that the unknowns are limited and not factored into the economics of the deal. Ideally you should work with an advisor to ensure your sell-side readiness and to be ahead of any pitfalls in the current inventory of documentation, reporting or assets associated with a transaction.
Are you ready to sell today? Contact us for an introduction call: https://www.revenuerocket.com/contact-us/ or start by doing a quick check-up of what your business could be worth with our valuation calculator.
Listen to the Shoot the Moon podcast on Apple Podcasts or Spotify.
Are you ready to buy?
Revenue Rocket has been helping buyers find the right partners for over 20 years. Consider a quick introduction call with us, and let's talk about your growth goals: https://www.revenuerocket.com/contact-us
When you embark upon a merger, what is the first and last things the seller should be thinking about? In this episode, we cover selling your firm and what it takes to get a deal done.
Our advice to sellers covered in this episode:
- You need to fully understand what you are getting into when selling, it's a hard, unnatural act.
- Going to market
- Do you know what you want to do next? What happens after the deal is done?
- Make sure to have clarity
- Bumps in the road - are you ready?
- Valuation expectations
- Accounting challenges
- ARE YOU READY? What is your mindset?
The effort that goes into a process to sell your business is substantial and will come with a cost of distraction, advisors and professional fees. Backing out over minor adjustments in valuation, timing or structure will not render an ROI for your efforts.
Ways to keep deals on track covered in this episode:
- Set good expectations
- Be truly transparent in your disclosures
- Commit to the combined entity and vision of the future
- Be fair in your assessment of chargebacks (boats in Miami are not legitimate business expenses)
- Be prepared to absorb some personal liability
- Structure the deal in such a way that it is always a win/win.
- Reps and warranties can protect both parties, so be prepared to accept holdbacks on payments or equity to allow additional time post-close to resolve allocation issues.
- Set good expectations with yourself
How an advisor can help:
- We help clients see the whole picture, including the likely pushback, carve outs and challenges we see during a process.
- Advisor can be the “bad guy”
- Being prepared ahead of a process makes all the difference.
- Financial reporting (audited)
- Tax filings
- Debt / balance sheet
- Keep the cap table clean (clean up old sins prior to the process)
- IP documentation
- Limited litigation pending
- Advisor can handle the majority of the tactical negotiations which helps keep the emotions out of the process.
- Eliminating the “Why” from the buyer's intent, or a term or condition that shows up last minute is key to avoid wondering what life will be like post close.
Today we are going to talk about the importance of cultural alignment during a merger or acquisition. Failure to consider cultural alignment in an M&A transaction can be the kiss of death. We see many times when two parties try to come together without an approach to implement and monitor culture it doesn’t work.
Here at Revenue Rocket we always look at 3 important things: Strategic Fit, Financial Fit, and what are we talking about today, Cultural fit.
Some things we'll dive into:
- Strategic Fit
- Integration
- Heirarchy
- Goal alignment
- Financial Fit
- Using an advisor
We'd love to learn about your growth goals. Reach out to us to schedule a no-obligation introduction call: info@revenuerocket.com
In this episode of Shoot the Moon, we're diving into what we are seeing in the M&A and IT Services market and what's hot and what's not. From consolidation in the market, to video etiquette, to cybersecurity - we're covering a wide range of IT Service industry topics.
This episode of Shoot the Moon is all about valuations in May 2021! The value of your firm is an estimate of market-based price and what is to be believed is a fair estimate of what your business is worth. Revenue Rocket has a valuation tool on our website that takes a few minutes to get a range of what your firm could be worth.
In the IT services space, we almost always see your valuation is multiples of profit. We can’t stress enough how important keeping profitability high is. Selling your firm is a really important decision, so don’t go it alone - use an advisor like Revenue Rocket to help you from due diligence to negotiating on your behalf to deal close. Reach out to have an introduction call: info@revenuerocket.com
Tune in to our discussion all about valuations.
In this episode of Shoot the Moon, the Revenue Rocket team dives into how to increase enterprise value if you are a seller and how deal structures impact enterprise value.
EPISODE BONUS: Mike and Ryan spend the first few minutes of this episode discussing what's happening in real-time at Revenue Rocket. What happens in the final weeks of a deal? What happens if you get 95% of the way done but let the 5% distract you from closing? Don't lose the bigger picture because of something small. The last weeks can be the hardest, but also make the months of the deal process worth it.
Revenue Rocket has been helping clients grow organically and inorganically for over 20 years. We have helped close hundreds of transactions, so we've seen a thing or two when it comes to deal structures. We'd love to hear about your growth goals: info@revenuerocket.com
In this episode of shoot the moon podcast, Revenue Rocket's CEO Mike Harvath and EVP of Business Development Matt Lockhart sit down with Brent Combest, General Manager, One Commercial Partner at Microsoft. Hear what is in the works at Microsoft and how the partner network of Microsoft Managed Partners around the world will play a role. The dialog spans the past lessons learned, trends, and the momentum seen in cloud services and technology categories and how M&A plays a role in the construct of the Microsoft Partner Program.
Discover how the next 18 to 24 months are critical to IT service providers remaining relevant, as growth fueled by M&A combinations along with technology enablement advancements will see those not capitalizing on the strategic benefits fall short and eventually priced out of the industry. This episode is a must-listen!
We really have seen it all when it comes to do's and don'ts during an M&A deal. Here are a few takeaways from some of our past experiences:
- Be yourself - but don't over do it
- Be mindful of what's around you and what you are doing during a video call
- Be smart about add-backs and what is considered an add-back
- Always conduct yourself professionally - even if you are not sitting at a conference room table together
- Consider who should really know about a transaction internally and externally
- Don't get greedy during the final hours of a deal coming together
- Understand EBITDA and determining your valuation
Don't do it alone! An advisor like Revenue Rocket can help guide you through the process smoothly, timely, and prepare your business for the next steps. We'd love to help skyrocket your growth together. Reach out at info@revenuerocket.com
Overcoming the inertia of every day can become difficult. How do you break through some of the revenue thresholds and execute against a plan that will help you grow? We believe it has to do with making changes in your business and adapting to the needs of your clients and the market. Sometimes doing what you’ve always done is the recipe for getting what you’ve always gotten. Here at Revenue Rocket, a huge part of our business is helping companies grow their profit long term.
Where to start when addressing what changes need to be made:
- A holistic analysis of your growth strategy
- Find an advisor to help you begin a transformation
- Dive into your marketing
- Quantifying the financial impact of the changes
At Revenue Rocket we have created a proven methodology for growing organically called SVP. SVP stands for Specialize, Verticalize, and Productize which are all equally important for sustainable growth. Focusing on one or two vertical markets and specializing in a technology will make your firm more successful than those who call themselves “The services firm for everyone.” In turn, creating marketing around your specialized technology in one or two vertical markets that is branded like a product(s) will bring in new clients and keep recurring clients. We encourage and teach business owners to think differently about how they run and grow the business.
The most important thing a buyer can do from the very beginning of a potential deal is to show how much they care about the company, the process, and the future of the seller's company. We've seen many buyers come in with a financial number first, which we believe is the wrong place to start. We've seen the most success in showing up and being excited about the deal!
In this episode of Shoot the Moon, we'll cover things like:
What needs to happen before getting to the first step or the introduction meeting?
- A seller should consider speaking to a broker or strategic advisor. This gets somebody on their side right away with years of experience in M&A to guide them and can join for the kick-off.
- An NDA between a buyer and a seller is typically signed before a meeting. Buyers should be respectful of NDA's and sellers should tell the story in the best way they can.
- Be prepared to treat the kick-off meeting as an equal exchange of information.
Tips for getting ready for the kick-off call:
- Be on time!
- Be somewhere that is respectful and honors the time of each party
- Have a good, stable internet connection
- Wear a good headset, headphones, and have a good microphone
- Turn on your video if you are meeting virtually
- Non-verbals matter! Smile, be professional, and have good posture
- Be prepared - know enough about the other company to have a productive conversation
- Buyers: understand what the financials look like (but don't make it the focus) - what is the revenue of the company and what is the picture of profitability?
We recommend not focusing so much on the P&L, but look at the strategic and cultural fit between your companies. Revenue Rocket has been helping IT Services firms buy and sell their companies for 20 years, if you're thinking about M&A, we'd love to talk.
Listen to tips and tricks to establishing healthy valuations, deal structures, and proven processes to reaching a successful combination under today's market conditions. As a firm that represents many buyers, we see transactions happening every day with buyers making strategic moves to get the best deals done.
Reach out to Revenue Rocket to skyrocket your growth through acquisition: info@revenuerocket.com
Let's talk about organic growth strategy. Half of Revenue Rocket's business is focused on organic growth strategies for IT Services companies - we've been providing guidance for over 20 years. We have developed a method for a systematic business transformation bringing critical stakeholders out of the reactive and into the proactive, allowing firms to become top-quartile performers. We do this by implementing our Specialize, Verticalize, and Productize model - SVP.
Listen as we dive into the 10 Principles of Successful Business Strategies in this episode of Shoot the Moon:
- Strive to be the Number one or two player in your market(s)
- Clear, consistent competitive strategy builds reputation and recognizable industry position
- Don't "get stuck back in the pack" - be relevant with a specialty that gives you competitive distinction and insulation
- On top of a specialized focus you need to market it!!
- Play aggressive offense to build competitive advantage & aggressive defense to protect it
- Avoid strategies that only succeed in the best circumstances
- Adapt! Learn to love change and make it competitive advantage, NOT inflexible strategies (ex. pandemic?)
- Never try to win on price with your clients - create value!
- "differentiate, differentiate, differentiate, or die!"
- Be aware. Aggressive strategic moves to wrest crucial market share from rivals often provokes retaliation in form of marketing arms race or price wars.
To each their own when it comes to fees during an M&A transaction. In what we’ve seen for over 20 years at Revenue Rocket, that is how it has always been done.
For example, a seller of a business would only pay brokerage, legal, accounting, M&A, or other fees for their own advisors, not the buyer’s as well. This is something to keep in mind if fee fear is a hurdle for you when considering a sale or an acquisition.
Revenue Rocket has been in the business of understanding fees and M&A advising for over 20 years, helping hundreds of IT Services companies meet and exceed their growth goals. If you’re open to a conversation or introduction call, reach out to us at info@revenuerocket.com
Goodwill is an intangible asset held by a business usually associated with the company’s reputation. There are two types of goodwill that are taken into account as part of a transaction that as a buyer or seller you should recognize and understand. There are differences in the way these types of goodwill are treated.
Personal Goodwill attaches to an individual’s contributions to the business.
Corporate Goodwill comes from characteristics specific to the business like the brand itself.
If you are entering into a transaction looking to separate corporate goodwill vs personal goodwill, Revenue Rocket has been helping IT Services firms sell their businesses and acquire other businesses for over 20 years. Reach out to learn more: info@revenuerocket.com
If you’re contemplating the sale of your business there has never been a better time to consider finding the right partner and also the right M&A advisor. Revenue Rocket has been the premier M&A advisory firm for IT Services companies for over 20 years!
Read the blog post mentioned in the Episode: Consolidation is in Full Swing yet People are Selling too Late, Why?
You may have built a successful firm from scratch or bought strategically, but at some point, it’s time to exit your business and focus on the next phase of your life, with your company in good hands - especially during this topping market. Ready to sell or consider a conversation? info@revenuerocket.com
We have seen valuations go up for the last several years, but saw an even bigger increase because of the pandemic. COVID-19 created a seller’s market for IT Services companies. The demand for digital transformation work and remote work support went up dramatically in the last year which helped many IT Services firms increase their valuations.
As a buyer (or a seller), you need to be competitive. Ask yourself some questions: does your combined business get somewhere together that they can’t get to alone? At Revenue Rocket, we like to ask, “Does 1 + 1 = 3?” In this episode, we talk through buying strategies and how to set yourself apart from the competitive landscape and areas of caution when acquiring.
Whether you are a buyer or a seller, don’t go at it alone! Use an M&A advisor to help you with things like origination, due diligence, and to help seal the deal. Through our proactive, disciplined, and strategic approach, we have been the growth advisor of choice for our industry since our inception. If you’re thinking about growing through acquisition or become part of something bigger, let’s talk.
Win-win deals involve compromise and patience but don't do it alone. Revenue Rocket has facilitated hundreds of transactions in over 30 countries for IT Services companies over the last 20 years. From deal origination to close, we can help you through your next M&A transaction.
We'd love to learn more about your growth strategy needs: https://revenuerocket.com/contact-us
Listen to Shoot the Moon on Apple Podcasts or Spotify.
Is it the right time to sell? Should you consider an earnout? Are you selling in or selling out? What are some options for your future role in your business? Listen to the answers of the questions business owners are asking when they come into a position to sell.
Revenue Rocket has been helping IT Services business sell their business and acquire other businesses for over 20 years. If it could be time for you to sell your business, we’d love to talk. Reach out at revenuerocket.com/contact-us.
We often use the term ideal prospect profile, which is something as a buyer or seller you need to understand. Before outreach to a potential seller, decide what attributes are the most important to you when looking at an ideal company to buy. If you are in a position to sell your business, think about the ideal buyer and what the ideal attributes are. Having your idea prospect profile ahead of time and then managing outreach is critically important.
Here are some attributes to consider when building a target list:
- geography
- size
- talent
- strategy
- culture
- revenue
- management team
- vertical market
We are representing some amazing IT Services companies for sale, if any of these companies fit your ideal prospect profile, reach out at info@revenuerocket.com.
The strategic buyer and the financial buyer: how do they differ? In this episode, Mike & Ryan discuss each buyer in detail.
A financial buyer is typically one who buys the business to get a reasonable return on their investment quickly. This buyer is driven by certain rates of financial return and may be looking at a portfolio of companies to buy.
A strategic buyer is looking to grow through buying a business that is strategically aligned with theirs, that fits into their business objectives, product & services set, culture, financials, geography, and other criteria.
At Revenue Rocket we look at 3 main criteria when working with strategic buyers and sellers:
- Cultural Fit
- Strategic Fit
- Financial fit
If the combination has an aligned strategy and culture, they can usually find a path to financial fit. A strategic buyer is looking for capability enhancement to complete or broaden their offering.
Recurring revenue is income generated in a business that comes in regularly, usually monthly, quarterly or yearly allowing a business to provide a service level to a client. Recurring income allows revenue to come in with a high degree of certainty and stability.
With a recurring revenue model, businesses can predict what percentage of revenue may be lost each month.
Reoccurring revenue is something that can happen again but not necessarily repeatedly.
Listen to our CEO Mike Harvath, and VP Ryan Barnett discuss the importance of recurring revenue, our insights, and how it impacts your IT Services business, especially during an M&A process.
Working capital is the liquidity that is needed to run the business to pay your obligations. Some people call it cash flow, but essentially the ability to pay your obligations in your business and how quickly you can turn orders to cash is how we define working capital. Accounts receivable management is important to maintain positive liquidity. Cash is king!
Many small businesses don’t have good policies in place to maintain good cash flow management. It’s easy to let your payables bloat when it’s not being managed every day.
In this episode we discuss:
- Coverage ratio and what it means
- Excess working capital and what that means
- What is good for a buyer?
- What is good for a seller?
- Overcapitalization
- What is the required amount of working capital to have to operate?
- Harvesting working capital
- Accounts receivable management
We have 20 years of experience and over 200 transactions under our belt in IT services M&A. In this episode we want to share our experience with the length of an M&A process and the timeline to getting a deal done.
We focus on answering questions about:
- What happens now that you've decided you want to either buy another firm or sell your firm? For example, you need to look at cultural and financial fit where 1 + 1 = 3.
- What makes your firm special?
- What is my "number"? What would I be willing to sell my business for or purchase another business for?
- What do the first 30 days of the process look like?
- Are your financials easy to understand?
- How many suitors need to be brought to the table?
- What does outreach look like?
- Should you use an advisor?
- How long do typical negotiations for an LOI take?
- What is a lockout?
- How long does it take to get from a letter of intent to close?
Related episode: listen to our thoughts on What to Expect when Expecting a Transaction here.
While we specialize in M&A for IT Services firms, we also have been helping these companies grow organically for over 20 years. Our proven specialization, verticalization, and productization (SVP) method is the key to sustainable growth. Revenue Rocket works with global IT Services leaders to secure their market position, expand in new or adjacent markets, and grow profit long term. One area we are going to focus on today is geographic expansion.
When looking at corporate expansion, businesses often overlook the strategic and opportunistic benefits that can come from looking at geographies beyond their current service area. At Revenue Rocket we look at many attributes when uncovering a geographic expansion opportunity for a client. Some obvious ones include; booming economies in niche markets such as an influx of tech investment in a certain city which in turn brings the talent.
A prime example of this was the influx of capital (human and cash) that Austin Texas experienced in 2016 & 2017. Another prime example is the category anomalies seen in markets, such as tourism in Orlando, Digital Out of Home in Las Vegas, or the financial services and investment banking that stems from Manhattan, NYC.
Whatever the motive it is important to work with your M&A advisors to quantify the opportunity and ideally time it perfectly with lifecycle trends to ensure proper valuations are in play. Today we are seeing a significant exodus from high tax states such as California. People that used to perform their duties at a major corporate campus are now encouraged to work from home and as such, talent is turning to more tax-friendly states to homestead. Today the State of California has seen more than $58B in adjusted income leave for lower or no tax states such as neighboring Nevada, Idaho or BIG Texas.
The reason this matters for IT Services companies is that the decision-makers are moving, headquarters are shrinking and the demand for secure working from home technology has skyrocketed. That said would we encourage our clients to seek an exit to a California-owned suitor? Expand there organically? Maybe! It really depends on the circumstances for the parties and the motivation behind the transaction.
Additional consideration should be made for international expansion, such as looking North of the border into Canada, or across the pond at European opportunities. While these can also carry large upside for category significance or emerging trends based on local and social-economic makeup it can also bear additional complexity as localization of platforms, people, and fundamental business practices can differ. It is important that you consider all variables and options when entering a process organically or on the sell side or buy side.
At Revenue Rocket we will use our proven processes to identify unique opportunities that yield the best outcomes and in today's market that almost always takes into account the option for Geographic expansion.
Identifying the right people to participate in the process can be harder than it seems. The process needs to be part of a larger strategy the business was executing against and as such the target, process and anticipated outcomes should be widely known and understood by those at the executive level. That said, once the company is in an active process pulling in the right people at the right time can become problematic. The due diligence process can be lengthy and should always be split into functional areas with the assigned owners. The likelihood of a company wanting to tackle all functional areas at once is slim and not advised.
So who needs to be involved?
CFO/Finance: The financial elements are often the most important and should be led by the executive with the most insight into the existing business and the corresponding leader on the sell side. These two not only have to reconcile and debate the accounting and forecasts but they may also end up working together post combination.
Corp Dev: The head of corporate development at a corporation is largely involved in managing the inbound inquiries for ongoing processes looking for suitors, but the role is much more than that. We think of corp dev as the strategist, executionist and cheerleader for the “buy” option, out of the commonly considered; build, buy or partner scenarios corporations consider when filling a gap in their offering. Once in a process this individual is the continuity between the information, gaps and misunderstandings that arise in each of the functional areas during the process.
CEO: The CEO’s job during a process is to get the deal done. They often are working with the support system of the process and ensuring that timelines are being met and that the strategic value is agreed upon by all leaders. The importance of group alignment post combination is the difference between achieving a return on the investment or not.
Corporate counsel: Whether internal or external, the attorneys are a key contributor to the process. Not just documenting the combination but in the disclosure, reps and warranties as well as corp entity restructuring as well as regulatory filings and governance. All components required to complete a transaction.
Sales Leadership: Do not bring them in right away. Maintain a sense of confidentiality as we recommend sales people that are out talking to clients shouldn’t be brought into an acquisition early.
Marketing Team: The marketing team is critical with announcing the deal, involvement in rebranding, press releases, post merger integration (PMI) etc. Plan early with your marketing team!
Human Resources: Your HR leadership needs to be involved more in an asset transaction than a stock transaction as you shouldn’t need to repaper the employees in a stock transaction. Bring in leadership on a need to know basis.
The fact is, the more people you tell, the more risk that you could violate your non disclosure. The rule should always be; “a need to know basis”. This is less about keeping confidential items confidential (which can carry more significance in public companies) and more about keeping people focused on the business. Acquisitions are distracting and if your leadership is all focused on someone else's business, they are not focused on yours.
Leveraging an advisor such as Revenue Rocket will provide your executive team the guidance and support you need while helping keep your leadership focused on the business. Our team of experts has participated in hundreds of transactions and we can be heavy when it comes to driving the process to the best possible outcome.
Read the transcript of the episode: https://www.revenuerocket.com/podcast/employee-involvement-who-and-when-during-a-buy-process/
You’ve built your business for a long time and now you’re ready to sell it for many different reasons. The process can be lonely, but it’s not a bad thing when you need to continue to run the business and create stakeholder value. So, who should be involved when you start this process? Listen to the episode to get our full run down on the process and employee expectations.
During a process it’s easy for employees to feel the distractions and shifts in priorities. It is important for a few reasons to keep employees at bay during the sale of your business to ensure continuity of operations before and during the combination. In this episode we will talk through some of the most pervasive employee challenges we encounter during a transaction:
- Involving management too early can spur unwanted opinions stemming from lack of understanding of the accretive nature of the transaction.
- Knowing which employees to involve in due diligence is also important as it is likely the other party will want details directly from those executing.
- Avoid bringing in the market facing people till the end. It is easy for this persona to like to use any advantage they have during a sales cycle and nothing ruins deals faster than loose lips.
- Set clear expectations as to why they are being asked to participate in the process and ensure the priorities of those involved remain on running the business vs just the process.
- When getting close to global announcement make sure you bring in leads from each department to be able to articulate the positive nature of the transaction on each group.
- If certain people are going to be asked to leave the company it is always best to leave those decisions up to the combined entity and for the decisions to be executed after the combination is complete. Nothing will derail performance like staff looking for a new job.
In closing it is important to have a methodical approach to involving employees in the process as well as ensuring that the completed transaction benefits everyone. Bringing in the wrong employees too early can cause stress or even the risk of the deal not getting done. It's imperative that everyone get behind the positive momentum that will be created once the business is sold.
In this episode, we are discussing the fruitful but confusing market conditions in the IT Services sector in the second half of 2020, as the country and world navigate a new normal.
While much of the world is struggling with the economic recovery, several sectors are growing as a result of consumer and workforce behavior changes. At Revenue Rocket we have seen a sharp increase in consolidation amongst IT Service providers and not as distressed assets. The IT Services sector is in an accelerated market meaning that the industry is growing at the same time that it is consolidating.
The growth is fueled by a number of factors but the largest being the higher propensity for "working from home" environments amongst enterprise employers. This has a significant impact on ancillary services such as remote access to secure infrastructures held by employers, the added security required to protect those infrastructures and the increased use of technology platforms that enable continuity between remote workers, such as video, chat and file sharing services.
The consolidation is an indicator of where the capital markets and private markets see the IT Services sector going. The fact is - this trend is here to stay and the value of IT Services companies is only going to increase as more and more employers and consumers adapt to the new world. It's a perfect storm for our clients.
At Revenue Rocket we work closely with buyers and sellers to ensure that accretive transactions are executed on time and on budget with clear and defined objectives.
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Keeping with the theme of providing guidance throughout a process, we felt it would make the most sense to talk you through the emotions that will come with a transaction. During this podcast we will discuss what to expect; before, during and after a transaction.
Getting to the emotional state whereby you are ready to sell your business is a rollercoaster of a journey, filled with ups and downs and at times filled with doubts and fear.
Having a trusted advisor guide you through the options surrounding a potential exit or merger of your business helps ensure clarity and proper understanding of the pros and cons of each option.
Let’s dive in...
BEFORE:
When we begin working with a client our first focus is to establish a clear understanding of the intended outcomes a seller (or buyer) is looking to achieve. Through a detailed process we are able to establish metrics and milestones that would be required to achieve such outcomes - we will walk through the valuations we are seeing in both existing and adjacent categories in both like and opposing markets/audiences. Second is to determine what financial results are going to need to be met to achieve the valuation the parties are seeking. Often we will leverage our SVP model to help a client achieve required metrics both in growth and earnings. This will enable the seller to either buckle down and get to the number or reduce expectations and proceed to market with a lower valuation and alternative suitor profile.
DURING:
Usually once we get to the phase of marketing the company for sale (or start the hunt to find the ideal asset) we have a solid foundation for what the process will look like and who will be invited to participate. This stage can come with some personal baggage when existing owners begin carving out who they are not willing to consider as a suitor. These discounted suitors are usually competitors or operators that have a track record of executing less than admirable transactions. At RRCG we help clients avoid the financial creepers, tire kickers and those that are not likely to be able to close. That said sometimes an exit into that evil competitor can yield the most reward. Competitive buyers are going to see higher value in a transaction and we should consider them in most cases as viable options. Many of the ongoing concerns that we face when bridging the dialog between buyers and sellers are sorted out and agreed to in the definitive agreements which will provide security to the sellers and their employees post combination.
AFTER:
Typically we like to think that if we do our job before and during the process we avoid unplanned emotion following the close. That said, things are not always perfect and the parties need to work collaboratively to resolve gaps in expectations as well as ensuring continuity in communication to the employees, customers, and the industry. When working with RRCG you can be assured that proper due diligence will be conducted, that all representations and warranties are clearly understood and that the joint business plan is firmly established and agreed to by all parties. This will ensure that the focus of those exiting the business or benefiting from liquidity will be positive and full of personal satisfaction.
Please keep us in mind when navigating the complex world of M&A.
With more than 90% of American businesses operating their fiscal year in line with the calendar year, the fourth quarter almost always brings with it additional goals, complexity, expenses and often earnings but how should you react during an M&A process?
While each situation is different, the process remains the same. Planning and managing against established targets will ensure that Q4 is not packed with surprises, distractions and disappointment but rather an opportunity to complete a transaction with the best possible outcomes.
Today we are going to talk about a few things to consider while rounding out the year (Q4)
- A solid financial proforma that ties out to your operating budget
- Make adjustments in real-time. As financial targets are missed or exceeded, ensure your expansion or retraction plans are always ready.
- Don't make the mistake of looking at Q4 in late Q3. Don't defer the tough decisions on the "if-come"! Cut your losses and ensure you are hitting the rest of those targets.
- Ensure the process stays on track but not at the expense of missing your year. Losing sight of managing the day to day operation will result in missed targets and a delayed process
- Finish strong. Ending the year at or above targets established during an M&A process makes for a very short last minute discussion on last-minute negotiations.
In closing, the key to a good Q4 is having a great Q1, Q2, Q3! Revenue Rocket can help with your short and long term organic growth strategy we’ve been doing it for over 20 years! Let's talk.
As a seller, you need to weigh today's valuation over what the future valuation could be based on contract value and economic forecasts. While future valuations are likely going to be higher, having the right mix of valuation criteria can ensure that you are getting a fair exit based on a multi-faceted assessment of the business. For example, looking at revenue and bookings vs EBITDA alone can yield a better valuation for a seller if the conditions are conducive to increased future valuations.
As a buyer, it is important to properly value the accretive nature of the transaction, such as ensuring the added benefit to the combined company is realized as part of a combination proforma. We help buyers identify true attainable returns on a transaction and what additional investments will be needed to reach those forecasts.
In this episode, we discuss the different lifecycles and use cases that our clients face during this phase of the process and how we look at win-win scenarios when documenting a transaction to ensure both sell-side and buy-side obtain the value expected post-close.
Forecasting is important to businesses so that they can make informed business decisions that guide them into the future.
Forecasting is the guide to grow your business and build predictable outcomes to set long-term strategies. This can be especially important when entering into an M&A deal whether you are the buyer or a seller. Revenue Rocket recommends that all businesses should try to forecast both revenue and profit for up to 5 years, even though knowing the far-out years could be a stretch. For example, businesses could not have forecasted COVID-19 and the economic impact it has had on 2020. Forecasts should be built on plausible methodologies and data so each decision, process, and transaction is based on real, predictable outcomes.
In this episode of Shoot the Moon, the Revenue Rocket team shares their experiences, recommendations, and processes for forecasting in your business.
Through Revenue Rocket's proven processes, we've helped clients grow organically, buy, and sell their businesses. Reach out to learn more about how Revenue Rocket can help.
Listen to the Shoot the Moon podcast on Apple Podcasts or Spotify.
Listen to the Revenue Rocket team discuss what matters during the financial due diligence process and what happens when two companies merge together in this episode of Shoot the Moon.
As we continue to see uncertainty in the economy with several US states struggling to contain the COVID-19 outbreak, more and more businesses are relying on Federal stimulus to come through with a gift in the form of Paycheck Protection Programs (PPP) and Small Business Administration (SBA) loans.
While convenient and inexpensive (and possibly free) these liabilities are popping up on balance sheets during due diligence and buyers and sellers alike are struggling to make sense of the terms and conditions.
When looking to buy or sell it is crucial that you look closely at a company’s Balance Sheet and peel the onion back enough to see what those long term liabilities are.
PPP and SBA loans carry unique Change in Control provisions that require prior written approval by the lender before completing a transaction. Failure to obtain such approvals are cause for default and immediate repayment. Yikes. That on the heels of continued uncertainty surrounding what additional forgiveness grants may come out of further federal stimulus could quite possibly see many M&A participants lose out on the handup.
Make sure to cover provisions for transfer of ownership and change in control triggers. We have seen many deals require these loans to be paid out on close or carved out in chargebacks due to unclear or miss represented loan terms and conditions by the seller.
The best way to avoid surprises with liabilities is to ensure a thorough process is leveraged by an M&A advisor like Revenue Rocket.
How do you present yourself and your business to someone without that firm handshake? Not only has Revenue Rocket been doing deals virtually since COVID-19, we’ve been doing it this way since almost inception of the business. Listen to the Revenue Rocket team dive into how deals get done virtually.
There is a lot more social acceptance of virtual meetings, especially in 2020. The expectations of the majority in person meetings have lessened with the outbreak of the pandemic. There is a tremendous amount of inefficiency in traveling globally right now. If you can eliminate the need for travel, you can operate much more quickly, save time out of airports, and stay off of a standstill freeway. Currently, as of August 2020, the borders between the US and Canada remained closed as well as US travel into the European Union so using remote tools to your advantage makes sense.
The economic impact of operating a process (or any business for that matter) is significant. While we always do our best to limit billable expenses, the cost of travel can add up quickly. Having the process, tools and discipline to operate remotely have been felt by our clients for decades.
Use Digital Infrastructure
There are many easy to use digital platforms that will keep an M&A deal moving forward and give flexibility. Screen sharing tools, portal sharing technologies, and simply picking up the phone are all very important in negotiating a transaction. Educating yourself on using conference calling tools, knowing how to take over a presentation, and using video for a more personal touch is crucial for success in virtual deal-making. Our 7 steps to a successful transaction include an operating budget for the process. Recently the social and cultural acceptance of remote meetings has been a major contributor to reduced expenses during M&A expenses in 2020. (You can buy a lifetime of subscription for a cost of a single flight.)
Standing Calls
Having predictable, consistent status calls during an M&A deal is important to know where each party stands throughout the process. We find a good cadence to be weekly or biweekly as a great catch-all for making sure the relationship and project are maintained.
This is incremental to our intuitive project management tools we use to help ensure continuity within a process and its stakeholders. We have always been a huge proponent to remote management and automation during a transaction.
Promote your Company Digitally
During the global pandemic, we’ve seen little to no in-person roadshows yet we have some of the greatest demand in the last few decades. Fueled by the increase in distressed assets and consolidating providers in all areas of the value chain, there is no better time to make sure your clients, your competitors, and employees know that you and your leadership is here to make an impact, regardless of the logo on the door. The country is more receptive to mergers than ever - or at least since the great depression.
When Revenue Rocket engages in a buy or sell-side M&A transaction, one of the most asked about topics is add-backs. An add-back is essentially an add-back to the profit of an expense that won’t occur after an M&A transaction is complete. Whether you’re a buyer or a seller, it’s essential to understand what these expenses are and how they impact the business. In turn, you’ll know what kind of valid profit contribution you can expect. You’ll also want to know when to throw out an adjustment when it’s an ongoing expense, or even dig in when an add back brings up costs that make you question the overall health of the business.
Below is a list of some of the add-back categories discussed in this episode:
- Above market owner compensation
- Taxes from above-market compensation
- Entertainment expenses
- Excess offsite corporate meetings/trips
- Management consulting roles
- Above market benefits/contributions
- M&A related expenses
- Social memberships (gold memberships, box seats for professional sports teams…)
- Sales related events/tickets
- Personal travel
- Corporate travel above and beyond “normal”
- Family member compensation
- Auto expenses/vehicle leases
- Meals for personal use (really not eligible anymore with changes in tax laws)
- Employee termination events
- Trade show events
- Legal expenses
- One-time rebates/Issues with bad debt
Please note: Keep in mind, we are discussing this to help enhance valuations. Please consult your accountants and lawyers for financial legal advice.
Many firms struggle with change. Many IT Services Providers are stuck between $5-$10 million revenue because they aren’t specialized, verticalized, and productized. At Revenue Rocket we call this our SVP model. This is not unique to IT services companies but almost any services business. Business owners need to leverage additional markets to break through these virtual sales ceilings.
3 methods of breaking through the $10M barriers;
Vertical Expansion: Consider looking at adjacent markets that have similar business needs. These markets often carry completely different competitors and technology solutions although the compelling need for IT services firms remains constant. Uptime, scale, supportability, deployment, and lifecycle management all play crucial roles for operators and they may be looking for a provider like you.
Geographic Expansion: Consider looking out of state or even country for additional market opportunity. While localization can be a barrier to entry, it's often not as significant as problems you can solve. Language, regulations, and different competitors can add to this complexity but considering the economic climate and job market, there has never been a better time to recruit the gaps in your organization and offering.
Mergers and Acquisitions: While working with your competitors may not be the most appetizing thought but the value creation from putting two competing companies together can be staggering, especially during an economic downturn. The most accretive transactions are where you are able to leap into another vertical in the same field. Example; Healthcare and Telecom. Leveraging the domain experience from each and best in class IP from both sides will create additional competitive advantage and further distance yourself from the competition.
Listen on Apple Podcasts or Spotify.
We’re only halfway through 2020 and it has already been quite a year. Listen to CEO Mike Harvath and VP of Growth Ryan Barnett discuss what we have seen so far in Q1 and Q2, 2020 as it relates to M&A and IT Services. Insights on deal structure, deal completion, and unrest from the global crisis. With all the economic volatility, Mike and Ryan dive into predictions for the second half of the year including liquidity, the federal election, additional changes in deal structures and more.
Listen on Apple Podcasts or Spotify.
The second half of 2020 will bring increased consolidation of distressed assets and deal structure creativity.
Earnouts:
With companies looking to ascertain valuation considerations based on how their businesses performed pre-pandemic, its highly likely an increase in transactions involving earnouts will be realized in the second half of 2020. Allowing sellers to earn back performance over time can accelerate the successful closing of a transaction that would have otherwise stalled out due to adjusted valuations resulting from the economic downturn.
Stock vs Cash as Currency:
With acquiring parties seeking to preserve cash and realize traditional sources of debt financing may be more limited, buyers are likely to pursue transactions using their own stock as currency to fund the transaction.
While sellers may be hard pressed to give up the notion that cash is king, at least they will be able to share in the future growth of the business and benefit from tax treatment on earnings associated with the sale. A stock-swap may also help the buyers afford to offer a slight premium in valuation.
Seller Debt Financing:
With transactions involving cash, it is probable that we will see an increase in seller financing as alternatives to traditional debt restructuring. Sellers can leverage sale proceeds as a loan back to the buyers to help alleviate issues surrounding questionable debt that could be sitting on the balance sheet. This avoids holdbacks resulting from uncertain or unsubstantiated debt from prior business. Having the seller hold these Notes keeps the parties mutually motivated to settle the debt in an efficient manner.
Forcemeisure / Material Adverse Effect:
We are seeing an increase in transactions where the parties are carving out certain Material Adverse Effects (MAE), such as COVID-19 and the financial fall-out resulting from it.
The clauses are meant to protect both parties and these carve-outs can leave buyers very exposed. Leveraging an advisor on these terms can have a substantial impact to the potential fallout resulting from acquirers walking away from deals for defendable reasons vs convenience. With the anticipated increase in consolidation of distressed assets in the second half of 2020, it's imperative that buyers and sellers are aware of the likelihood of a transaction never completing.
Why the Rule of 45 is a critical step in identifying a defendable valuation for acquisition targets:
- Understanding inflated growth risk
- Determining the risk through calculation.
- We look at two metrics to identify the combined value. First, is the Year over Year growth rate as a percentage and the second is EBITDA %.
- To calculate the growth percentage look at the gross revenue of a business over a couple year period. Subtract the previous year revenue from the following year revenue. Multiply that number by 100 and divide again by the second year revenue.
- Example: $3,200,000 (year 1) & $4,100,000 (year 2) 4,100,000 - 3,200,000 = 900,000 100 4,100,000 = 21.95%
- How to further evaluate targets with combined “Rule of 45” scores exceeding 45.
- Working with M&A advisors like Revenue Rocket helps identify valuation risks and other potentially costly errors that can come from improperly sizing up acquisition targets.
So, you're thinking about buying another firm on your own. Is your business ready to take this on alone? At Revenue Rocket we always ask, does 1 + = 3? Does this prospect firm get your business to a place it couldn't get alone? If so, here are 10 things to accomplish when doing an M&A transaction yourself:
- When is the right time to buy
- Cash or stock based transactions
- Accretive nature of a transaction
- How to establish proper valuations
- Category analysis to determine what to buy
- Properly evaluating the competitive landscape
- How to draft intent once you find the right target
- Establishing a due diligence plan, including establishing a combined proforma
- How to draft definitive agreements
- Closing time
Consider using an M&A advisor, like Revenue Rocket, when considering buying another business. Revenue Rocket has facilitated over 250 transaction with a 94% success rate (average with an advisor is 50%). If you're looking to acquire another firm, we'd love to have an introduction call. Reach out at: info@revenuerocket.com.
As we’ve all started getting used to the “new normal,” we now have much to look forward to with the nation slowly opening up. As an IT Services Business owner, you should prepare for increased consolidation in the industry and what you can do to prepare your business for both organic and acquisitive growth.
- Assess the damage:
After such an economic pause it’s highly likely that some of your clients won’t be around to service post the shelter in place orders. those that are around may have new financial constraints that could impact their ability to pay for your services. It’s critical that you closely manage you aging receivables and minimize the impact.
- Prioritize your accounts and projects.
Upon returning to full operation your business may have a different looking client base and potentially a different competitive pool. Knowing which accounts to protect and which ones to manage closest will help ensure you are protecting your top and bottom line.
- Right size your organization to meet your demand.
Unlike your clients, you yourself may be faced with excess capacity resulting from lost accounts or smaller billing forecasts. The most dangerous thing you could do is hang onto that expense and hope for the business comes back. Make the changes early and grow again when needed/the time is right. Be careful with the amount of cash your depleting and always try to keep your clients happy.
- Consider an acquisition.
We are seeing a shift from a sellers market to a buyer market and now might be the right time to consider growing your business through acquisition. Buyers are ready to acquire. If you’re not thinking about an acquisition during these times, you are leaving growth (or an opportunity to retire) on the table.
If your business is getting to the point where it may need to be part of something bigger, Revenue Rocket is a source to help advise you through the murky waters of a merger or acquisition. We’re here to help!
To manage your organization’s transformation out of the urgent and into the important, Revenue Rocket has developed a method for a systematic transformation that brings key stakeholders along on the journey out of the reactive and into the proactive management of business change to becoming a top quartile performer.
We call this the Revenue Rocket SVP Model.
Specialize. Productive. Verticalize. We’ve been using the SVP Model since our inception to help our clients become best in class. In this episode of Shoot the Moon, CEO Mike Harvath explains each element of the SVP model and why executing this model into your business will set you apart from your competitors.
Here’s the breakdown.
SPECIALIZE:
Pick a technology specialty and be the best provider available for your target market. When you specialize you separate yourself from your competitors by:
1) Being extremely relevant to your customers’ technology needs, in their industry, using the ideal technology for what’s needed
2) Attracting and retaining better talent by narrowing in on a specific technology niche 3) Commanding higher billable and utilization rates from buyers who are less sensitive to price for effectively differentiated products and services
VERTICALIZE:
Pick one vertical market and be the #1 player in that market, aligning with your technology specialty. You can own a market by being in the one or two which you are naturally suited to and doing it better than anyone else. It will be easier to market your business and do it more effectively.
PRODUCTIZE:
Make your service (once technology is specialized) an easy to buy solution. Are you making your services easy to buy like a product is? Create a branded entity for your offering that combines:
1) the functional benefits of your product (e.g. a CRM system);
2) the service excellence of your consultancy; and
3) a hearty dose of the intellectual property that defines your IT philosophy
Bundling all this into a branded offering differentiates you from the pack, makes it easier for your customers to buy, and more value for your sales team to bring to the table. Liste. To the episode to find out how to implement our SVP model.
We specialize in organic growth strategy. Reach out to learn more.
Listen on Apple Podcasts or Spotify.
5 marketing things to tackle DIY style:
- SEO 101 - use the web to educate yourself on the basics of Search Engine Optimization. Its minimal effort and likely the most powerful tool you’ll build that no one will ever see.
- Start a Blog - People have been paying you for advice or perspective for years. It is time to put those thoughts and opinions down into words and let that new SEO bring in those new leads. Check out our blog for inspiration or a template to get you started.
- Build out your contact lists - Email marketing is a great way to spread the word about industry news, upcoming events, new products or releases. If they are going to read about your industry it may as well be from you.
- Get Social - Social media such as Facebook, Twitter and LinkedIn are getting record engagement these days as people turn to their devices for entertainment. Posting a new story or promoting your newest blog is easy and the more people looking at your company the less are looking at competitors. Don't have social media pages? Now is the perfect time to educate yourself and easily set them up.
- Ready set Action - Video and audio content are getting easier and easier to produce at home or the office. Find our podcast on Apple Podcasts or Spotify & our M&A Minute videos on Youtube. Editing is easier than ever and the only thing better than a Blog is a video Blog and Search Engines love video.
If you have extra downtime from working from home, DIY marketing is a great use of it. Find more detail on DIY marketing on our blog.
There are many unknowns businesses are facing as we move through 2020 and beyond. In this episode of Shoot the Moon, Mike shares his thoughts and recommendations on how to handle the long term impacts of COVID-19.
OUR INSIGHTS
- Demand for speed and execution: Demand for capacity and speed is still ongoing - are your clients in a good place?
- Uninterrupted service: while we know it’s not business as usual, but make sure your customers know you are still there for them.
- Creative Approach: adapt to focus on “touchless adoption” and the new normal of working from home. Take steps across the organization to keep your employees productive.
- SVP model: Your value proposition should make your solution easy to buy. if you’re focused on 1-2 markets and you are verticalized, it will be easier for you to sell your products or services.
- Remove any misinformation: make sure your leadership and employees are aligned. Communicate clearly with trusted information.
- Marketing: Keep up your marketing efforts! These are critically important as you move towards the end of the year. Listen to last week's episode: Don't Stop Marketing!
- Monitor your financial health!
Consumers are being engaged differently these days... What used to be an in person dialog is now an online article or podcast. Is your business part of that content?
Your customers are learning new things at an unprecedented rate since the stay-in-place orders went into effect and your product or service may be just what people are looking for. So, rather than cut back on marketing, use some of your new DIY talents to reach your target audience in this new and likely forever different world!
“Stopping your marketing and advertising to save money is like stopping your watch to save time.” Henry Ford.
COMPETITIVE ADVANTAGES
- As competitors slow spending, it leaves an opportunity to get noticed in your markets.
- As companies reduce spending on things like support and maintenance, it could leave customers feeling exposed or neglected and could make for good competitive marketing campaigns.
THINK DIFFERENTLY
- Clear and consistent content strategy: does it flow smoothly? Does it follow the times?
- Accelerate your digital marketing strategy
- Update your positioning to take into account the “new normal” - dated marketing material can be more harmful than none at all!
- Asses your content - Does it flow smoothly with the times?
- Be prepared to modify your strategy - you may need to be flexible to serve your customers and potential customers
- Be sensitive: COVID-19 si a serious situation - there is a right way to make light of the situation
COMMUNICATION
- What do your clients need to hear from you? Should you be putting your clients’ minds at ease?
- Employee marketing and communication - what do your employees need to hear from you?
- Employers should provide current messaging about what is being done to ensure the safety of employees and clients. (You don’t want staff providing inaccurate information)
Eventually, the economy will rebound, and if you continue your marketing strategy you will be ahead of your competitors and keep up your business.
Manage the business through the crisis to the best of your ability. The most important thing to consider is, don’t be too abrupt with changes in your marketing and advertising. Don’t stop running your business efficiently - only change what you need to change!
We can help advise you, reach out anytime: info@revenuerocket.com
It is important as business owners and executives to inventory and quantify your exposure in times like this. COVID-19 is eating away at the health of our country. Not just our physical health but our economic health. By evaluating your risk ahead of time you can ensure you take steps early on to protect your business from rising and delinquent accounts receivable (AR) and subsequent cash flow issues.
Find the 3 steps in full on our blog.
If your business is severely impacted:
- Offer early pay discounts to your clients
- Secure receivables
- Connect with your banker on cash flow options
- Right size your business
- Look at options you may have not looked at before
- Become verticalized
- Consider a merger or acquisition
Listen to Mike’s insights into protecting the health of your business during an economic downturn on Apple Podcasts or Spotify.
An add-back is an expense that is added back to the profits of a business (most often earnings before interest, taxes, depreciation, and amortization, or EBITDA), to show the profitability and value when you take out expenses that will “go away.”
Add backs play a critical role in adjusting the bottom line when analyzing the valuation of a company. A “legitimate” add back is an expense that is for owner benefit that would not continue after a transaction with a new buyer.
Some examples of legitimate add-backs are:
- Legal Fees
- Facility updating
- Personal expenses
- Adjustments to the owner’s compensation
One time instances where it would add back to EBIDTA:
- One time fees: litigation that has now been settled
- Something you wouldn’t close after a transaction
Things that we would not consider an add-back:
- Owners salary if you are going to continue on after selling your business - adjusting compensation to the market price
- Bad debt expense. For example, you’ve done a lot of work for a client and they didn’t pay you so you write it off, this expense is not considered an add back.
- Rationalizing Staff - Let’s say you paid someone for the year and it was a bad hire and you fired them, it would not be considered an add-back as it impacted your profit.
- “I rented a space that is too big for my business.” This is an expense you can adjust, but you can’t say in the year “we should have had a smaller office so we should add this back.”
If you’re acquiring a company read our add backs blog post.
Think about add-backs to EDIBTA are for owner benefit that will not be there going forward, or one time expenses that hit your P&L that will not in the coming years. If you have questions about expenses you need to take a closer look at, we can help. Reach out at: info@revenuerocket.com
How do you determine the valuation of your IT Services Firm? The simple answer is: multiply the revenue. Business valuation can be used to determine the fair value of a business for a variety of reasons, like positioning it for sale.
Driving the Valuation of your IT Services Firm:
Sustainable and growing profitability is what drives valuations for IT Services providers. This is a key factor in creating buyer interest. Especially if your firm has more than 50% recurring revenue. The buyer has to get to a forecasted return rate to successfully be in a position to buy your business.
The truest meaningful metric of a valuation is having a willing buyer and a willing seller coming to an agreement on a purchase price.
1 + 1 = 3
Get somewhere your business can’t get to alone. 1+1 = 3 to a successful merger or acquisition. RRCG does around 400 valuations a year across the IT Services space which gives us a great perspective on knowing how to help value a business.
When calculating the valuation of your business:
- You can expect your business to be worth 6-8 times trailing EDIBTA
- walk a mile in the shoes of a seller and walk a mile in the shoe of the buyer
- get to a forecasted return rate: that is in excess of a 5-year return based on a cash flow basis
- Have a willing buyer and a willing seller to set the MBP (market-based price)
Try our Valuation Calculator!
You’re leaving 50% of growth on the table if you’re not proactively open to buying another company to accelerate growth. If you’re thinking this could be the right move for your business, we recommend looking at firms half your size. This is what we call “the sweet spot.” There are exceptions to this as some firms can take on higher debt or handle a higher profit company, but there are risks. Mike shares his thoughts on buying firms half your size, the same size and larger throughout this episode.
Key things to look at when looking at another firm to buy
- Strategic Fit
- Cultural fit
- Financial fit (after the cultural fit and strategic fit seem to be aligned)
Why buy now? There’s no time like the present. As you grow your business there are many unknowns for the future. What will the economy be like? Have we hit a market cliff? Will I be able to take on that much risk down the road? Acquiring the right firm will take your business places you couldn’t get to on your own where 1 + 1 = 3. Build your brand quickly, expand your reach, and grow “into” a market are just a few of the many reasons why acquiring could be the right move for your firm.
Who to buy:
- Firm that looks like yours
- A firm that helps you specialize in a vertical market
- A firm that expands your firm in other areas
- Adjacent markets that align with your vertical market
- Complimentary
We believe the fastest path to growth is through acquisitions. Don’t go at it alone - Revenue Rocket has been helping firms for 20 years buy and sell their firms. Contact us.
The luxury of perspective is paramount to your success in life and happiness as a person. Many don’t realize how limited their perspectives are in many situations. It’s important to include “Yes, and” instead of “Yes, but” in professional and personal conversations. Why? Opening your mind to different perspectives will help you as an IT Services executive or business owner become more successful in all facets of life. For example, if you view someone’s level of success based on one perspective, how will you open your mind to others’ views of success? How will you add value as a business leader? Be open-minded to seek to understand other views of success as it is critical in your ability to be a great business executive.
A message from Mike:
“To better understand who is in front of you during a business deal, transaction, client meeting or whatever it may be, you need to be able to walk a mile in their shoes. This is a difficult thing for people to do because it takes time and willingness to understand a different perspective before jumping to conclusions and stuck in black and white.
I always say when you embrace living in the gray areas sometimes - not just look at your life and others’ lives so black and white, that’s when you really open your view of success. Change your colors or become chameleonic in the environment you are in.”
How Perspective helps you as a business owner:
- It changes the way you produce in a business
- Changes your mindset - think about things differently
- Brings more value to conversations
- Apply creativity to problem solving
- Better performing leader
Ways to gain the Luxury of Perspective
- Connect with your own mission as a person and business leader
- “Yes, and” not “Yes, but”
- Looking at the gray areas - not just black and white
- Walk a mile in someone else’s shoes
- Don’t zone out - zoom out
Perspective has helped Revenue Rocket facilitate good interactions and improve companies - we’ve been doing it for 20 years! Bringing open-mindedness into our business has helped us and our clients be more successful. Sometimes we call ourselves “chameleons” as we change colors in our environment - how we interact can all depend on the client, the transaction in front of us, and the potential partners at the table.
We’d love to work with you on growth strategy and adding perspective to your business. Reach out at mhvarvath@revenuerocket.com
2019: A Year in Review
M&A in IT Services Was Hot
- We saw a record year in the number of transactions. Not only with Revenue Rocket but in the industry in general
- Overall across industries there was a flattening in M&A volume except for IT Services where we saw an acceleration in deals
- Companies valuations increased with most deals having at least a 6X multiple
- Private Equity buyers are looking to invest or buy IT Services companies, accounting for a higher number of transactions than 2018.
IT Services firms found new ways for growth by focusing on:
- Specialization: companies spent more time focusing on a set of well-defined technologies within partner driven hardware and software stacks. We continue to see a shift towards cloud adoption in both infrastructure and applications, and the need for service providers to lift, shift, and optimize clouds for clients
- Verticalization: more IT service providers were targeting vertical markets, building solutions tailored to the needs of a niche. This improved valuations and improved client retention.
- There’s an increased influence of IT Services companies in the overall economy, impacting how companies embrace a digital transformation
- Stock market growth has given companies more confidence in making investments within IT
A Bright Future for 2020
We see no deal shortage coming for 2020 and we think it will accelerate even more. Many IT Services companies have had record years in 2019, but there is an opportunity to top those numbers in 2020. There is an increasing influence of technology in the economy that will play into the coming year of growth.
We predict continued consolidation this year and see a strong appetite from acquirers to keep acquiring. Many MSPs, Custom Application Developers and Application implementers are looking to merge. For example, in the application implementers space we are seeing consolidation with Salesforce partners.We see Microsoft ERP focused partners move as they migrate towards the cloud and Business Central.
We also predict that the influence of nearshore and offshore development companies are forcing further consolidation and for companies to be successful, they will need to offer more services, such as DevOp, security and data/analytics expertise.
“The path to the promised land is to make transformations in 2020 to become more focused” -Mike Harvath, Revenue Rocket
What will happen with the Election?
We believe we will still have heavy growth this year. The stock market may not go up as much as it did in 2019, however the market will continue to grow and prosper, and we recommend capitalizing on the growth opportunity in front of you.
For the companies that are making transformations to a vertical service set, they will continue to see interesting opportunities as they begin to expand their business into adjacent industries to their current target market while expanding services within the same vertical market.
The world is more tech driven than ever and we are excited to see how IT Services companies in 2020 continue to grow.
We’ve noticed greater interest from private equity companies investing in or acquiring IT service providers with a strategic approach – not just a financial one. Leading with a strategic buy, followed by add-on acquisitions, Private Equity companies are building larger portfolios and expanding interests within specific target markets.
For sellers, there are good reasons to entertain an investment or an acquisition from a private equity buyer:
- An opportunity to fully exit your business
- Deal structures are prominently cash, with earn-outs or sell financed collared notes used to help warrant parts of the business that may pose additional risk
We are seeing Private Equity investing more heavily into:
- Managed Service Providers because of the reoccurring revenue bases. IT providers with low churn rates become solid investment vehicles for long term, buy-and-hold, strategies.
- Staffing companies
- Traditional project-based consultancies with cloud based solitons, targeting the enterprise. There is a need for client applications to be moved to the cloud
- DevOps and optimization of cloud infrastructure
- Custom Development companies
Private equity entities are structuring all/heavy cash deals which are beneficial if you are looking to exit your business to retire or move on. We call this a clean exit. If you’re considering an exit entertain a conversation with private equity. We can also guide you along your way to an exit of your business, we’ve been doing it for over 18 years.
Our forecast for M&A:
Most of the economists we have looked at say M&A will continue to be strong through 2020 even through the presidential election. We still expect there will still be plenty of private equity buyers in the market. We recommend entertaining these offers if you have the option.
You are building your company to ultimately sell the for a significant amount of money. We get it; it’s your biggest asset as an IT Services business owner. The most profitable firms we see are running their business at higher than 15% net income - where does your business fall?
What separates profitable companies vs not profitable companies:
- Market Focus - are you focused on a narrow set of customers with a prospect profile? Can you market them effectively?
- Efficiencies - how are you approaching all aspects of the business? Leadership? Go-to-Market strategy?
- Hire an advisor - do you have an outside perspective to help you skyrocket your growth?
We talked about optimizing profit in Episode 2 - which could be another great resource to get you started on that way of thinking.
Profit is arguably the most important aspect of your business, and if you’re looking for an advisor to help - reach out: info@revenuerocket.com
It is a competitive landscape out there in the world of IT Services. Listen to Mike’s experiences and insights into the market(s) you are in or should be in.
Mike's Thoughts:
The goal: Be number 1 or number 2 in the market you’re in. Be the expert!
Align your go-to-market strategy, your marketing, and your sales. Focus on driving efficiency in your business by effectively marketing in a few markets, sometimes just one. We find that firms who do this have very little competition in the market place.
What about geography? We find that our clients who expand their addressable market AND specialize in their offering can really make a difference. Physical office space has become less and less important as a company’s ability to operate virtually in a meaningful way can become the secret sauce for success.
HOW TO GET STARTED ON EXPANDING INTO NEW MARKETS
- Analyze your customer base - see where you are already concentrated
- Do your market research - Research each market you are interested in
- Look at a market based on opportunity - not because it sounds exciting and “fresh”
If you’re going to invest in growth, those that verticalize outgrow and create much more profit than those who don’t. Feel free to reach out to us anytime for insights and expertise into growth strategy: info@revenuerocket.com.
In this episode of Shoot the Moon, we cover the hot topic of CEOs who are approaching retirement or are thinking about retiring.
There is a handful of things to think about when selling your business:
- Intersection of technology: specialization
- Your Market focus: verticalization
- How well you build out the offering you have from a services perspective to look like a product: productization
At Revenue Rocket, we call this the SVP (Specialize, Verticalize, Productize) model which we believe must be optimized and aligned to get ready to sell! If not, you are leaving money and opportunity on the table. In our experience, the companies that achieve this model have a lot more interest leading to more buyers.
We talked a lot about this topic at our M&A Done Right event during Microsoft Inspire - check out our full event video.
Value drivers for preparing your business for sale
- Make sure your business model is optimized for growth and profit
- Focus on above average profit - preferably top quartile profit
- Drive higher EBITDA to get a higher the value of your business
Reach out to Revenue Rocket to learn more about selling your IT services business: info@revenuerocket.com
This Shoot the Moon episode dives into the balance of growth and profit with the rule of 45. Our host, Mike Harvath, dives into this rule and how it impacts your business based on revenue. Find more info about our success stories using this rule on our website.
Optimize your business for profit, and grow sustainably with a little insight from this episode.
If you missed us at Microsoft Inspire (or joined us for our favorite event and want to learn more), listen to our take aways from M&A Done Right, our growth strategy event. The event included 5 M&A experts who joined us for a Q&A panel, all relating to mergers and acquisition in the IT space. In this episode, Mike Harvath covers some of those M&A questions asked and answered.
Mike covers these questions:
Current Market Outlook
What is going to happen after 2020?
How does a company maximize value for a potential transaction?
How to best position your business for sale/put on the market?
What are the pitfalls to look out for during a transaction?
If you want to learn more about our expert panel and M&A Done Right, check out our event page: https://www.revenuerocket.com/inspire-2019