What’s Your Company Really Worth?

by Lisa Fasold on August 1, 2012



Maybe you’re looking at five years to grow your company organically to where you want it to be.  But five years is a long time in the IT industry.  Instead, you’re looking at mergers and acquisitions to get bigger quicker.

At an August CompTIA session, presenters Samuel Attias, managing partner, Technology Capital Investors, and Rick Murphy, managing partner, Cogent Growth Partners, gave attendees an insider’s perspective on what really goes on behind the curtain when buyers are considering purchasing an IT services business.

Attias remarked on how market consolidation is a big reality.  “In the future, there will be a handful of players in each market. There will be a third less MSPs in three years and two-thirds less in five to seven years,” he said.

Murphy noted there are several reasons why sellers sell their businesses – from quality of life issues and trying to take money off the table, to focusing on something else or simply retirement.  But the buyer can imagine all sorts of reasons why the seller may be selling.  They’ll think, “Is there a hidden agenda,” “Are you not good at your job,” or What are their challenges?”

The M&A process really comes down to building trust – on both sides.  Sellers and buyers need to aim for transparency.

When presented with a new M&A possibility, Murphy advises, “Think opportunity first, money last.”  Ask yourself why put the two companies together; ask what are the opportunities and value proposition.  Later on you can discuss the money end.

But how can you know if an offer is fair? Murphy noted that the typical multiplier effect really isn’t the main pricing strategy to follow. Instead the only real question in determining your company’s worth is finding out how much the buyer will pay. Your company is worth exactly what someone is willing to pay for it. In the transaction, your customers are the most valuable asset.

For buyers, they need to decide if they are looking at an investment or a purchase.  For an investment, the buyer will let the seller run the business the seller’s way so how the seller runs the business really matters.  In a purchase, the buyer is going to run the business his way – maybe with help from the seller.

Murphy said that there has to be profit for both sides, and if it takes the buyer much longer than 24 months to break even, then his/her risk increases exponentially.  In essence, a fair deal is the best deal. He advised the audience:

  1. There will be negotiation right up until the day of closing. That’s normal.
  2. Nothing happens as quickly as you’d like.
  3. Try to not become emotionally involved.  It’s a business.
  4. Get representation; an intermediary can help both sides.


Posted on Aug 01, 2012