There’s a moment early in every acquisition conversation — usually within the first exchange of information — when a buyer has already formed a working opinion. Not a final one, but a real one. And it happens before the detailed financial review, before the management calls, before anyone mentions a data room.
At that point, they’re not evaluating your business in full. They’re deciding whether to keep evaluating it at all. Five factors shape that impression more than anything else. Know what they are, and you can position accordingly. Don’t, and you’re leaving it entirely to chance.
1. Recurring Revenue Percentage
In IT services M&A, recurring revenue is the clearest signal of business quality. Buyers want managed services contracts, subscription agreements, and multi-year commitments — revenue that shows up month after month without someone re-selling it every time. High MRR signals real retention, real relationships, and predictable cash flows. Low MRR opens a question about whether the revenue is as durable as it looks on paper.
Quick gut check: What percentage of your revenue is truly recurring? If you’re not certain, buyers will calculate it themselves — not a strong position for you.
2. Customer Concentration
If a single client represents more than 15–20% of your revenue, buyers notice fast. Customer concentration is one of the most common deal complications in IT M&A, because it introduces a risk that no amount of due diligence can resolve: what happens if that client leaves after close? Buyers discount for concentration, sometimes heavily. The strongest businesses to sell have a broad, distributed client base where no single departure changes the story.
3. Key-Man Risk
This one is harder to see from the outside, but buyers develop an intuition for it quickly. How often does your name appear in client contracts? Are you personally handling escalations? Do you close the significant deals?
Key-man risk — the degree to which the business depends on you to function — directly affects valuation. Buyers are acquiring a business, not hiring someone. The more the business runs without you at the center of it, the more attractive it becomes to someone trying to picture operating it after close.
4. Operational Documentation
A business that runs on institutional knowledge and personal relationships is harder to acquire and integrate than one that runs on documented processes, clean contracts, and organized records. Buyers look for evidence that the business can be understood and operated by someone other than its founder — SOPs, a proper contract library, clean financials, HR documentation that reflects how things actually work.
If the answer to ‘where’s that documented?’ is usually someone’s inbox, that’s worth addressing before you go to market.
5. Growth Trajectory
Buyers are paying for the future, not the past. A business with three consecutive years of steady growth tells a fundamentally different story than one that grew, plateaued, and quietly went flat — even if the current revenue figures look similar. Trend matters. A business moving in the right direction commands more interest and better terms than one where the owner is hoping buyers won’t notice the numbers have stopped moving.
Actionable Takeaways
Before your first buyer conversation, make sure you can answer these five questions clearly and confidently:
- What percentage of my revenue is recurring?
- Do I have a customer concentration issue — and what’s the plan?
- Can my business function for 60 days without me?
- Where are the operational gaps, and are they documented?
- What does my growth trajectory look like over the past 36 months?
If you can answer all five with confidence, you’re in a strong position! If some of them give you pause — that’s valuable information, and you still have time to do something about it (hint hint…call us).
