Selling or buying a modest-size IT or engineering staffing firm is increasingly challenging. Since M&A brokers don’t typically work with firms of this size, sellers are left with a “word-of-mouth” approach, which is not the most effective because of limiting the pool of potential buyers. Additionally, it is virtually impossible to maintain confidentiality with this technique.
TechServe Alliance, however, provides a unique approach to overcome these challenges. It starts with a straightforward valuation process.
The Valuation
John Larson, lead consultant with the TechServe Alliance’s M&A Marketplace Program, shared the following factors for determining a company’s value.
- Financial: Depending on how you categorize your clients, an analysis of revenue, profitability, gross margin, and selling and general administrative expenses (SG&A) may be required. It is best, for example, if less than 30% of a company’s revenue comes from one client.
- Business Profile: What types of businesses do you focus on? Is your business primarily contract or direct hire? Less than 10% of your revenue should come from direct hire. Buyers also like to see long-term contracts with clients. Having a statement-of-work (SOW) as part of your offering is also viewed favorably.
- The Team: Who are the key personnel on which your business depends?
- Offices: In the COVID-19 era, where companies embrace remote work, are you tethered to physical offices and what are its implications for your company’s geographic footprint.
- Terms of the Deal: The terms of a deal are as important as the selling price. Sellers typically want cash on the day of closing and they want to avoid or minimize earnouts. While some buyers may be willing to offer cash, it will always result in a lower offer price.
Legal Considerations
Martin L. Borosko, Esq., managing partner of Becker LLC advised business owners to consider the following before listing their firm for sale:
- Staging: Staging for a business is similar to staging for a house. A slicker presentation at the time of sale means greater potential buyers and a broader range of offers.
- Letter of Intent (LOI): Though unbinding, the LOI should include all the details. It will help protect sellers beyond staging.
- Due Diligence: Know your strengths and weaknesses. It is a mistake to hide weaknesses since the goal is to find the right fit for both sides. Be careful as to when you give the buyer access to your employees and clients.
- Transaction Documents: The buyer controls the initial draft of the transaction documents. This document is binding, unlike an LOI.
- The Closing: You hand over the keys to your company to the buyers. Don’t underestimate the work required to prepare exhibits and schedules required to close the deal.
Our Innovative Approach
TechServe Alliance Services Corp. offers an innovative approach to selling and buying small and mid-size IT or engineering staffing and solutions firms that significantly lowers the overall costs and risk.
- For sellers, it’s a straightforward four-step process including a valuation analysis and assessment of the readiness to sell and opportunities to enhance enterprise value. A seller can decide not to proceed with a subsequent step at any time. The total advisory fees paid by a seller who proceeds through all four steps leading to a sale is $5,000.
- For buyers, the process is also straightforward with no costs until you identify a firm you are interested in acquiring. Complete a buyer’s profile and we will share information on companies that are a potential match. If there is a match, sign the buyer’s agreement and confidentiality agreement. To extend an offer, submit a Letter of Intent (LOI) and $1,000. If you and the seller agree on the LOI, the fee is $4,000. If you close a deal, pay 5% of the sale price.
Members can access The New TechServe Alliance M&A Marketplace webinar through the TechServe Online Learning Center.
