Mergers and acquisitions aren’t just for huge corporations.
If your MSP is enjoying success, a valid way of growing your business further is to consider buying out the customer bases of your competitors, or perhaps merging with competitors to form a larger business.
You may be surprised to find that some of your smaller competitors would welcome the opportunity to join forces – especially successful one-man IT companies who are struggling to keep up with their work. Similarly, buying out a rival firm can provide you with a quick way to expand.
Doing deals like this is not for the faint-hearted. Due diligence is an essential part of the process – after all you need to know who and what you are getting involved with. For a buy-out, you need to know exactly what you are buying. If you are considering doing a deal of this nature, here are five essential factors to consider.
1. Are Clients Under a Good Contract?
Even if a target company has a huge turnover, this means little in terms of a buy-out if they serve their customers on an informal arrangement without tight contracts in place. After all, what’s to stop all of the clients walking away as soon as they hear of a take-over?
2. Is a Good Handover Possible?
If you are merging with another firm and keeping some or all of their personnel, this needn’t be an issue. But in the case of a takeover, you need to make sure you can deliver a smooth transition to your new customers – otherwise, they will not remain your customers for long. One way of dealing with this is to retain one or more key people on a consultancy basis for a set period of time to assist with the transition.
3. Is the Client Base Compatible with your Business Model?
Not all clients are equal. For example, if most of your existing clients are law and accountancy firms, it will likely prove easier to begin to support additional similar businesses, rather than buying-out an MSP who supports media agencies and designers. You need your new clients to complement your existing business, not cause a disruption that may affect your current standards of service.
4. Are the Systems Well-Documented?
Good documentation is the sign of an IT company that takes its work seriously. Its existence can also determine whether you provide a great service to your new clients from day one or whether you struggle to perform.
5. Are the Clients Happy?
Do your potential new clients know that your target firm plans to sell? How do they feel about it? The answers to these questions are crucial in determining whether your expansion will be successful.
Many companies use buy-outs to expand their business. At the same time, several see business owners wishing they had known more about the company they were taking on.
Clients that you gain from an acquisition will not place you in a position of total trust straight away – you will need to gain their trust through good performance, just as you would with a brand new customer. Make sure, therefore, that you have the ability to make the correct impression.