Ten Reasons to Sell Your Information Technology Company June 16, 2010
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For the past 20 years you have built your information technology business. Your company has become part of your identity. Even when you are not at work, you are working, thinking, planning. You never stop. If you sell you are leaving behind much more than a job. In this article we will discuss some reasons that might indicate that it is time to sell your information technology company.
1. Late in your working life you are faced with a major system re-write, sales force expansion or capital requirement in order for your company to maintain its competitive position.
2. A large competitor is taking market share away from you at an accelerating pace.
3. Your legacy system or competitive advantage has been “leap frogged” by a smaller, nimble, entrepreneurial firm.
4. A major company just acquired a direct competitor and will be aggressively growing the business.
5. Your fire to compete at your top level is not burning as brightly as it once did.
6. Your kids are not interested or are not capable of running the business.
7. You have had a health scare and have decided to smell the flowers.
8. You have lost a major client of a key employee.
9. The market is hot and you decide to take some chips off the table for asset diversification.
10. You exit in an orderly fashion and from a position of strength as you intended.
Lets look at these in a little more detail.
Major capital investment, system upgrade or sales force expansion required – You are supposed to be diversifying your assets, not concentrating them even further. Think about a simple payback analysis. Does that extend beyond your retirement date? You want to be able to defend that investment with the energy and intensity you devoted when you were originally growing your business. Maybe it is time to bring in an equity partner with smart money, an industry buyer with the management depth, infrastructure, or distribution network to protect that investment. You might consider selling now with a three-year employment contract. Let the new owner fund the required capital investment and defend that investment with his larger capital base.
A Large Competitor is Taking Market Share Away from You – Believe me, the news is not going to get better. As an investor you would probably sell the stock in a company you owned if Microsoft or GE decided to assume a presence in that market. Business owners often struggle with objectivity when a similar event takes place in their own company’s industry.
Your Legacy Systems have been “Leap Frogged” by a Nimble Entrepreneurial Firm – This happens all the time and can cause an erosion of your customer base. Your inertia will sustain you for a while, but eventually you will begin to experience customer defections. You can either rewrite, acquire or sell. If you decide to sell, do so before losing too many clients.
A giant company in your industry just acquired one of your major competitors. Watch out, they did not make this acquisition to maintain status quo. They want to grow their market share. They will be coming after your clients. The good news is that as a defensive measure, one or more of their competitors will be compelled to make a similar acquisition. It is best to be aggressively ahead of the curve and get acquired while the market is hot and prices are being bid upwards.
Your interest and competitive fire is eroding. Let’s face it, if you are not growing, you most likely are contracting. Your competition was tough when you were on your game. Your family’s net worth is under attack if you are no longer fully committed.
Your original plan was to turn your business over to your children. They may not be interested or capable of competing at this level. Perhaps the greatest legacy you can leave to your kids is to convert your company into a diversified portfolio of financial assets that are far less risky than turning complex company in a highly competitive industry over to inexperienced managers.
You have a health scare and all of a sudden you start thinking of all the sacrifices you made and all the things you want to do before it is too late. Your list of goals is immediately changed from financial in nature to family, friends, travel, experiences, philanthropy, etc. You might want to listen to your heart this time.
You have lost a major client or a key employee. That can be a real blow to a business. The owner, by nature, is optimistic and believes that the lost business will soon be replaced and does not ratchet down the expense level to match this new sales level. If he does cut, inevitably, it is not fast enough and not deep enough. Maybe it is time to seek a buyer that could replace that business before your company’s value is severely impaired as your profits erode.
The market is hot and you decide to take some chips off the table for diversification. You may be thinking of retiring in four years, but a consolidation is occurring in your industry and valuations are up 20%. Sell at the top and sign a four-year employment or consulting contract. The odds are that if you exit on your original schedule, valuations will have settled back down to the norm.
You ring the bell and exit on your own terms, from a position of strength, exactly like you planned. You are well aware of the competitive forces in the market and the relative strength or weakness in valuation multiples. You have prepared your business to be attractive to a strategic buyer. Everything is going your way. You hire a good M&A advisory firm to present you confidentially to the most likely buyers. Several recognize your value and show interest. You are able to get a little competitive bidding going. Your transaction value rises and your terms improve. You pull the trigger and complete the sale. Mission Accomplished.
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About Author
Dave Kauppi
is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and President of MidMarket Capital, representing owners in the sale of technology based businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.
Comments
The difference between the two is Information System Outsourcing refers to the hardware and software used by a company; whereas Information Technology Outsourcing refers to the solution that needs to be developed. For example IT writes a new program for the company to use, IS puts the program on the company servers and creates the connections for employees to use the program, and then someone from IT and IS will support and maintain it.
Information System Outsourcing means that a company contracts with another company to use their hardware and software system. The company that the work is being outsourced to owns the system and is required to maintain the system and make sure it is up and running 24/7. Some companies do this because the do not want to or can’t afford to make the investment in technology or people to own and maintain their own system. An example would be a start-up company wanting a full function email and collaboration solution for their staff, but doesn’t have the money to buy the exchange server or hire the team to install and maintain the system so they contract with another company to provide these services.
Information Technology Outsourcing refers to the process of contracting with people or companies with a specific talent to provide technical development or support services. Usually this is done where a company does not have the technical skill in house or only needs a certain expertise for a short period of time. An example would be a trucking business wanting to develop a custom routing system that will take 6 months to develop. So they hire a company that specializes in this type of work to develop the proper solution rather than going through the trouble of hiring their own employees to do the work.
Example:
Information Technology System – Computers
Information System – Wikipedia
Check out Davenport University http://www.davenport.edu
They have a state of the art school of technology, almost 30 campuses, plus online courses.
Good luck!
try to get A+ certified
CompTia. then maybe MCSE
Information Systems is more generic. Information Technology primarily deals with hardware, network, internal maintenance and support, etc./
you must volunteer for Subs. there are certain ratings ( FT) that are ONLY on submarines, so don't choose one of those. ITs can be stationed anywhere..ship or shore.
Well it depends on which one you like more. Make the one you like most your major and the other your minor. You'll get the best of both worlds!
An information system is a "thing" either computer or human that gathers resources together and organizes them into something useable. Consider your computer. You download music and your computer knows, "ok, this is a song, I will put it here with the rest of the songs I know of…."
Information technology is the learning that uses what those songs are, but ways to display them better, by using better sound cards, better video monitors, video adaptors, etc. The Technology behind what you see on your screen is by the people who have made or engineered it that way. To find a better, more cost effective way to do it, or a different way alltogether are up to you.
The system is what we create to do a job, the job is still left to us…..