Determining whether you and your company would do better in the long run to continue as a stand-alone entity or sell and become part of a larger organization involves a large number of considerations, both professional and emotional. Entrepreneurs almost universally struggle harder with the latter, for there is no denying that selling your company is as much a personal as it is a business transaction.
If you are an early entrant in a growing sector, with branding and presence that allows you either to at present or in the near future, dominate or be a tier-1 market leader, then chances are you are better off growing organically because no one will pay for what you are worth. The problem is that most entrepreneurs think they belong in this category and that everyone else should be consolidating to keep up with them. Anything from future economic uncertainty, evolving product architecture, being priced out of the market or not getting enough sales can derail several years of sustained growth and ensure that your market-share never returns. Just remember, for every Facebook, there is a MySpace (and Friendster, Orkut, Hi5, Google+).
Strategically the decision rests in a single question: If there is a larger market out there, am I able to capture it with my current resources? If you are dominating a market that is not going to grow, or are going to struggle to capture in a timely manner, the customer accounts to be more competitive, then you should seriously consider selling. To persevere otherwise would only mean years of frustration for you, your employees, your family and your other shareholders.
Consider a regional managed IT services provider who has had sustained double digit growth from inception nine years ago, with a customer base of 500 accounts. They may be a currently accessible market of 25,000 Enterprise, Government, and SMB clients, and given the history of organic growth and customer satisfaction it seems that market share can easily be doubled or tripled going forward five years. Yet a near-term future that will see a wave of server migrations, virtualization adoption, and increased cloud utilization means a shift back towards capital investments, R&D expenses, new hires and decreased earnings in order to build management and service capabilities to meet an evolving market. If the MSP is not content merely to grow, but to be a market leader, M&A consolidation would be the most efficient means of achieving long term strategic objectives.
Of course there is a human factor. Maybe you bootstrapped the company from nothing, personally hired everyone in your firm, went through every day of college tooling the vision for your business, or just love being ‘the boss’. Though it may feel so at first, selling a company is not an admission of defeat, betraying your employees, or placing greed before ambition. The average IT services company lasts less than fifteen years, after which, having reached the natural apex in its evolutionary cycle, the desire for inertia to break the developmental limitations of the firm drives the company to sell or merge with another entity to create a new platform of technology and services that brings the future forward. This is how almost all companies have grown over time and most have brought their employees and families up with them.
Author: Mergertech is a Mergers and Acquisitions and technology investment banking service provider which acts as an trusted M&A advisor and Keenly focused on technology and software sectors to help the market and sell Information Technology (IT) and Software companies.
If you are an early entrant in a growing sector, with branding and presence that allows you either to at present or in the near future, dominate or be a tier-1 market leader, then chances are you are better off growing organically because no one will pay for what you are worth. The problem is that most entrepreneurs think they belong in this category and that everyone else should be consolidating to keep up with them. Anything from future economic uncertainty, evolving product architecture, being priced out of the market or not getting enough sales can derail several years of sustained growth and ensure that your market-share never returns. Just remember, for every Facebook, there is a MySpace (and Friendster, Orkut, Hi5, Google+).
Strategically the decision rests in a single question: If there is a larger market out there, am I able to capture it with my current resources? If you are dominating a market that is not going to grow, or are going to struggle to capture in a timely manner, the customer accounts to be more competitive, then you should seriously consider selling. To persevere otherwise would only mean years of frustration for you, your employees, your family and your other shareholders.
Consider a regional managed IT services provider who has had sustained double digit growth from inception nine years ago, with a customer base of 500 accounts. They may be a currently accessible market of 25,000 Enterprise, Government, and SMB clients, and given the history of organic growth and customer satisfaction it seems that market share can easily be doubled or tripled going forward five years. Yet a near-term future that will see a wave of server migrations, virtualization adoption, and increased cloud utilization means a shift back towards capital investments, R&D expenses, new hires and decreased earnings in order to build management and service capabilities to meet an evolving market. If the MSP is not content merely to grow, but to be a market leader, M&A consolidation would be the most efficient means of achieving long term strategic objectives.
Of course there is a human factor. Maybe you bootstrapped the company from nothing, personally hired everyone in your firm, went through every day of college tooling the vision for your business, or just love being ‘the boss’. Though it may feel so at first, selling a company is not an admission of defeat, betraying your employees, or placing greed before ambition. The average IT services company lasts less than fifteen years, after which, having reached the natural apex in its evolutionary cycle, the desire for inertia to break the developmental limitations of the firm drives the company to sell or merge with another entity to create a new platform of technology and services that brings the future forward. This is how almost all companies have grown over time and most have brought their employees and families up with them.
Author: Mergertech is a Mergers and Acquisitions and technology investment banking service provider which acts as an trusted M&A advisor and Keenly focused on technology and software sectors to help the market and sell Information Technology (IT) and Software companies.