Mergers and aquisitions

[nattivillin]

I have been approached a few times in the past years about buying someone out. They usually own or are the majority shareholder in a IT repair/networking company.

I didnt give it much thought, but as i calculate the true cost of opening a new store in a different market, maybe there is some benefit to taking over a already operating business.

Anyone have any experience with this?

Would a merger be something anyone would be open to? What conditions would have to be met?

[chrisits]

Re: Mergers and aquisitions

Some points I can think of -

1. Check their reputation, especially if they are located out of your current territory.

2. Make sure you can actually manage remote stores. This might be harder than it seems.

3. When you get to the right point in your discussions - ask to see their accounting details. Don't just look at bottom line - review actual invoices, look at their expense structure, check whether their clients come back, etc.

4. Review their employees background and see if they've been working there for a long time and try talking with them.

5. Call the shop and ask for support and maybe try buying something. Feel from first hand how they handle sales requests and how their customer service and support functions.

[smelvin]

Re: Mergers and aquisitions

This is two separate topics in my opinion. I'll treat them differently...

1. Mergers. By far and away the least expensive way to dramatically grow your businesses. The key to any merger is 'Due Diligence' and this is not only the accounts, but must include every facet of their business. You must make sure that the are a good fit and will integrate with your existing business. There is a huge 'but'. If you want someone to merge with you (with little or no cost) you must be prepared to give up something. In other words, what are you offering would be attractive for someone to share all they have built and earned. Crucially, ask yourself would you accept the offer you are making? If you are not prepared to make concessions and relinquish some control, then forget it. It will turn sour very quickly. The alternative would be acquisition...

2. Acquisitions. A straight out buy will cost, and cost a lot. Probably more than the market value. Why else would someone sell. You might be lucky and your target has planned for this eventuality and a framework might already be ready. There are some clever ways in which you can get your target to work in the business (handing over period, say 2 years) and you can pay them more than they would normally. This way they are actually working to pay themselves. Like mergers though, you must perform due diligence on all aspects of the business.

After all that and your still going to go ahead, hire a good business lawyer! The new organisation must have a proper legal framework which clearly defines rights, responsibilities etc. This will protect you as well as give assurances to the other party.

Please remember one thing. All relationships end. Fact! This might be amicably or not, or indeed through death of one party, but you must plan for this. I can't stress this enough.

I do apologise, my replies tend to grow arms and legs. I'll stop for now.

Cheers

Scott

[ebuhrendorf]

Re: Mergers and aquisitions

I've been actively seeking other IT/Support shops in the state of CT but noone wants to sell. What am I doing wrong?

[smelvin]

Re: Mergers and aquisitions

You're probably not doing anything wrong. I personally think it comes down to the thinking of people when they start up an IT business. There are numerous reasons, mostly because they want to do things their way, but the last reason is usually to build a profitable business to eventually sell. I know there are exceptions, but I am making a generalisation.

We have online systems in the UK where you can get information on companies (they are legally obliged to publish their accounts etc). This information can be extremely valuable as you can do a 'read between the lines' exercise. If you don't have the skills yourself get your accountant to help. It can be fairly obvious if a business is building a business to sell or its a lifestyle business. Things like assets, salaries, how the owners take money out of the business etc. If you look at their history over a few years it builds a picture. This way you can identify businesses maybe structuring themselves to be attractive to a buyer.

Not trying to point out the obvious if this is something you've done already, but I find it fascinating. If you haven't then it might help identify targets.


Cheers

Scott

[nattivillin]

Re: Mergers and aquisitions

@ ebuhrendorf, You probably arent doing anything wrong. Ive dabbled a few times but it always fall apart due to pay and customer service.

Some people don't want to be BIG, they are happy owning a JOB

IMO