When (and Why) IT Services Firms Should Hire a Buy-Side M&A Advisor

“The fastest-growing firms marry organic excellence with a disciplined, outsourced M&A engine.” — Mike

I. Warm-Up: The CEO Mindset

Q1. Mike, what are some of the most common reasons CEOs in IT services think about buying another company?

Q2. When should a CEO not consider buying? When is it too early or misaligned with the company’s strategy?

Q3. What are some signs a firm is ready to start looking for acquisitions?

II. Why Engage a Buy-Side Firm at All?

Q4. So let’s get into it: why hire a buy-side advisor like Revenue Rocket instead of just sourcing deals yourself? What’s the real value?

Q5. What are the risks of going it alone? Can you talk about deal fatigue, overpaying, or getting stuck in a bad fit?

Q6. Some CEOs think they know their market well enough to hunt alone. What’s your response to the “we’ve got it covered” argument?

Q7. We often say we’re not bankers, we’re operators. How does Revenue Rocket’s buy-side work differ from traditional investment banking?

III. Timing and Engagement Strategy

Q8. When is the right time to engage a buy-side firm—before or after you’ve identified a target?

Q9. How long does a typical buy-side process take—from kickoff to LOI to close?

Q10. What should a buyer come to the table with? What homework should they do before engaging an advisor?

IV. Results, Metrics, and Mistakes

Q11. What makes a buy-side project successful? What metrics or signals tell you it’s working?

Q12. What are the biggest mistakes buyers make—even with an advisor in place?

Q13. Talk about deal volume vs. deal quality. How do we balance sourcing a lot of targets with getting the right ones?

V. Case Study and Wrap-Up

Q14. Mike, can you share a story—no names needed—where hiring us as a buy-side advisor turned a good idea into a great outcome?

Q15. For the CEO listening who’s on the fence—what’s your final argument for why now might be the time to engage a buy-side partner?

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Mike Harvath: Hello and welcome to this week’s Shoot the Moon Podcast, broadcasting live and direct from Revenue Rocket World Headquarters in Bloomington, MN. For those of you tuning in for the first time, Revenue Rocket is the world’s premier M&A advisor to IT services companies. We are M&A people. With that, my partner Ryan’s with me today. How you doing, Ryan?

Ryan Barnett: Hey, Mike, I am doing well. And yeah, we are M&A people. I think part of what interests me in this career and profession, I think for you Mike, you love giving back and part of that is giving back some knowledge. So we try to tackle topics that serve the questions our customers are asking and what we’re seeing on a weekly basis. And I literally just got off a phone call with an executive at a private equity firm who has multiple investments in the IT space and the private equity firm is just asking a question of.

Mike Harvath: OK.

Ryan Barnett: Boy, what does buy‑side advisory look like? What is it? We haven’t really done this before and we work with our own internal deal teams and we expect them to really produce results. But can we do a little bit more? Are there other ways to go out there? So Mike, that really prompts me today to discuss this discussion with you. I wanted to raise this up and ask the question: when does it make sense to do M&A and why does it make sense, or when does it make sense to bring on an M&A advisor? I’d love to discuss that topic with you today, Mike. So let’s just jump right in. You know, Mike, why are people in the IT services space and why are the most CEOs in this market—what makes them think about buying a company in the first place? And why should companies in general start thinking of mergers or acquisitions as a strategy for increased growth?

Mike Harvath: Well, part of the reason, Ryan, is that it helps you compress time, right? Certainly, I think as most successful entrepreneurs in the IT services space go, there’s a certain cadence of growth and profitability that their firm has and it takes time just to continue to scale and grow a firm, right? And if your desire is to eventually exit an investment with a firm—which I think many people that have started firms and even sponsors that sponsor firms like private equity firms and other investors—you know, certainly there are some buy‑and‑hold sort of investors, but many of them want to increase shareholder value and then ultimately exit and be able to capture that value. And along that journey a way to compress time to their goal is to do buy‑side M&A—to acquire firms that fit strategically, culturally, financially—so that they can get to their goals faster.

I think, you know, certainly that’s the business case behind M&A; that’s at least one of them. I think certainly there’s other opportunities too with accretive value—what we’ll call EBITDA multiple accretion—where a larger firm may trade at a higher multiple than a smaller firm, and if it can pull together and integrate some smaller firms into a larger firm, you’ll be able to gain some economies of scale there, typically take some cost out as well as get to a higher multiple because you’re larger and more attractive to a buyer up‑market.

Ryan Barnett: Absolutely. And you know we’ve also seen companies just looking to bring an adjacency strategy to their market. And so sometimes you’re filling product or service line gaps. Perhaps you’re diversifying your service line overall. We’ve worked, for example, with companies that specialize in implementing one flavor of ERP and just adding another vendor to the mix. And so not only is it accretive to revenue and profit, which in this case it certainly is, but it also helps them bring diversity to the portfolio, their customer portfolio starts to expand and they start to fill in gaps.

And I think one of the big things is when you’re thinking about why you want to acquire and what it takes to get in that M&A mindset is really, Mike, what you’ve mentioned—having that strategy first and making sure that’s well‑defined before you think about any type of process, whether bringing on an advisor or just in‑house. Making sure that you’ve got your vision and your core focus really nailed down. And if that core focus includes expanding a geography, expanding revenue, expanding a service line, then a tool in the toolkit starts to become buying other firms to fill those gaps and really live up to that vision for your one‑year, three‑year, and ten‑year plans.

If I flip that script, Mike, we have a lot of firms—we talk with some firms that are just starting out their journey. You know, if M&A can be very powerful for growing through buying other firms, when do you start to take a different look at that, and when should a CEO not consider buying? You know, when is it too early or misaligned for the company’s strategy such that someone should say, hey, maybe M&A is not the right play at this moment?

Mike Harvath: Well, I think you can’t fix, fundamentally, things that are broken in your business through M&A. I think a lot of people think that’s a possibility: they go, oh, I’m great technically and I built a super business, but it doesn’t grow very well. We don’t really know how to go‑to‑market very well or sell. We get all of our business through word‑of‑mouth. You know, and they say, hey, maybe I can go buy a business that has a great sales guy—that model oftentimes doesn’t work as well as you think it might intuitively. Or I need to shore up my delivery function or my contact center function or my back‑office function—that doesn’t always scratch the itch.

I think it’s critically important if someone’s going to scale effectively through M&A to have a well‑running business, one that organically grows, knows how to market and sell, knows how to deliver, and is probably in the top quartile of both revenue growth and profit realization amongst its peers. It also has to have some scale because you can certainly afford to buy much smaller firms, but you can probably afford to take on the risk and the financial burden of buying a firm about half your size. We’ve certainly seen and helped clients buy firms as large as themselves, but it’s more rare.

And it’s important to know what you’re acquiring and ultimately, if you’re going to be integrating that into your proven business model where you can get some efficiencies, that that’s a 1+1=3. So I would say you need to be running pretty darn well organically, you need to be a leader amongst your peers for both revenue growth and profit realization, and you need to have some scale—you probably need to be at least $10 million in revenue looking to do some tuck‑ins and add‑ons, and bigger is better, frankly, as you look to do M&A. Because as you look down‑market from your view as a $10 million firm or a $15 million firm or a $20 million firm, firms that start to get too small tend not to be very mature financially. They tend not to have their processes completely figured out, or at least mostly figured out. And that makes it harder to get synergies.

You may think, well, it might make it easier to get synergies if we implement all of our proven business processes and practices, but that approach to the fixer‑upper—hey, we’re going to buy this firm and dial in our process—is oftentimes harder than you think. So I think you have to be a firm that runs really well and one that’s large enough to buy a firm of scale that has enough going on that you know what you’re getting.

Ryan Barnett: Right, right. You have to have meaningful impact to the business. That’s why oftentimes—maybe a topic for a different podcast—but oftentimes when a company is considering an acquisition, doing a small deal versus a big deal, it’s still the same amount of work in many contexts. So oftentimes just finding and buying the biggest company you can is the best way to do that.

I will say that in order to find opportunities, they don’t necessarily fall in your lap. Sometimes they do—actually, if you meet someone at the right spot at the right time, opportunistically those deals happen—but it’s relatively rare. And if you start to think about acquiring a firm, the process of researching those companies, reaching out to them, getting discussions going to understand their financials, providing an indication of interest or a letter of intent, doing diligence and a quality of earnings, and then getting through agreements—there’s a lot that goes on in this process, Mike.

So I’m curious: why do firms, when they start to look at this M&A market and the amount of work that it takes to actually get a deal done, why do companies start to look at and hire a buy‑side advisor instead of just sourcing deals by themselves? What’s the real value of starting to bring in a firm that can help you with your M&A initiatives?

Mike Harvath: Well, I think there’s a lot of reasons why that works pretty well, Ryan. First of all, I’ve often said M&A is the most unnatural act in business. It’s certainly something that most operators, or even a lot of private equity guys, don’t have a tremendous amount of experience—at least they don’t have as much experience as likely an M&A advisor, for example, someone that does this for a living. And experience matters: how to do research, how to target firms, how to open discussions with outreach, how to qualify them as a potential seller for a particular opportunity, how to get them to the table, and then how to chart a course so that 1+1=3.

That’s all beyond the mechanics of valuing that firm, making an offer, and ultimately doing diligence on that firm. So I think oftentimes when people think of M&A advisors or buy‑side advisors, they think about them just adding value in origination—because it’s really hard to call up a business owner and say, hey, have you ever thought about selling your business, and then convince them to get to a table and close? It’s a very challenging thing to do, and you have to have a well‑oiled machine that can do that.

Unless you have people that have done that day in and day out for years, it’s challenging for you as a business operator, or as a leader in a company, or even as someone who leads corporate development for a firm, to have the scale and have exercised the muscle enough to be effective at doing that. It takes many, many touches on multiple channels to get someone to have that conversation, and unless you’ve got a program that is nimble and you’ve figured it out, you’re going to be at this a long time.

So I think the smartest operators—private equity firms, sponsors—work with specialists like Revenue Rocket to do that, right? They see the value in a niche‑market specialist like we are in IT services and leveraging our domain expertise, our contacts, our Rolodex, and more importantly, our proven 25‑year process, along with our team and people that do this for a living, to get those results faster. Now, certainly you can do it on your own, but it’s going to take a lot longer with a lot more mistakes and misses than if you hire a firm who does this every day and has done it for a long time.

Ryan Barnett: I’m in the best, so I tend to agree with you. It’s one of those cases in which—even if I look at our own firm—you have to have specialties within your function, and it’s really hard to be the guy who can do a due‑diligence report and also be able to crack open a brand‑new conversation convincing someone to sell their life’s work who’s never engaged in a conversation like this before. So the specialty is large, paired with the horsepower that another firm can have. Bringing that is a big deal.

And then also to your point, Mike, I think you nailed it: a large component of the deals are much bigger than just starting out and sourcing everything. From the valuation from a third‑party perspective in which someone with industry expertise has actually seen deals—it’s really hard as an operator to see the multiples that we see, or the deal structures that we see, or the conversations that we have with real buyers and real sellers, not just spreadsheets or reports from third‑party sites. I think that’s a big difference: the access to knowledge and the capability of executing upon that.

You talked about some of the risks of doing this alone, and Mike, what other things happen? It seems like deal fatigue can be huge, and distractions of doing this, or just simply overpaying because you may not know the true value of the firm or even strategically aligning—you might be too close to this emotionally and it’s hard to take a step back and say what needs to be done strategically. But what are some other risks that CEOs or business‑development people encounter when they do this alone and take a run at buying companies by themselves?

Mike Harvath: Well, there’s a long list, Ryan. Certainly you have to have the technical skills to do each one of these very specific jobs well. You need to be an expert researcher. You need to have expert outreach skills to be able to cold‑call people or cold‑email or cold‑target them in a compelling way to get them to a conversation, and then when you get them to the conversation, you need to be able to engage them in a conversation about them, because it is much more about what they’re trying to build and what they’re trying to do in support of an eventual exit. And that eventual exit might not be now and it might not be with you.

So being able to have a conversation about what’s in it for them, and then move them along to engage on doing a valuation—where you have great expertise in that—as well as diligence and working with lawyers to do drafting: all that stuff requires a lot of very specific knowledge and skill sets. It’s pretty hard for one individual to be an expert in all of those things. And so what happens is if you’re not an expert in all of those things, you tend to make mistakes at critical times in the process that can put deals at risk.

That’s part of why there are a lot of statistics that say if you’re going to roll your own in an M&A deal, there’s only about a 1% chance you’re going to get that done. That means there are all these inflection points where typically people who try to roll their own make mistakes or can’t execute. That’s why those numbers are low. Industry stats show that when you use an advisor, those numbers go up dramatically to about 50%. So that vast crevasse between 1% and 50% has to do, I think, in many ways with using experts in all these different areas of domain within buy‑side that can help you move things along with the knowledge and the experience to do it.

I think there’s also risks for overpaying or getting what I call deal fever. Sometimes buyers get deal fever—they want the deal so bad that they’ll do whatever they need to do to get it over the line, and that causes them to overpay or to acquiesce on deal terms. They get emotionally connected to the deal because they’ve invested so much time and energy and money, in some cases with legal and other third parties, that they just want it done. They just want it over with.

You need someone who’s emotionally detached to help keep you in your lane as it relates to negotiation. And not to mention, there’s great value in having a third party help you just maintain the relationship with a seller. As we’ve often said, there’s sometimes stink left on someone in a transaction because negotiations are hard and long and tedious, and it’s better to have that person be a third‑party M&A advisor than you, because you have to maintain a relationship with someone you’re going to work with in the future, and you don’t want them carrying a chip on their shoulder about something you might have said along the way in the process.

So there’s certainly a lot more risk of failure if you try to roll your own than not, and that alone, for smart buyers who engage buy‑side advisors, they get that: they understand that this is a risk‑mitigation strategy, a way to go from a 1% to a 50% chance of getting the deal done; it’s a way for us to leverage our limited resources in a much more effective way. And those guys engage firms like Revenue Rocket to do buy‑side all the time.

Ryan Barnett: Next question, Mike, is exactly when: when should a firm engage a buy‑side advisor like Revenue Rocket or other companies like us? Is that typically before you’ve identified a target? Is it after, when you’re trying to buy a platform or an add‑in or tuck‑in? When’s the best time that you see buy‑side initiatives—from using a third‑party specialist advisor—work well?

Mike Harvath: Well, I think most operators—and actually most sponsors or private equity firms—already have a full‑time job, right? Whether you’re a CEO of a sponsored company or a stand‑alone company you’ve built, or maybe both, you’re busy. You’re already wearing a lot of hats and you’re busy. In some ways when you hire an outside firm, you’re outsourcing a big part of your corporate‑development function to an expert, a domain expert in a niche.

From that perspective, the best way to do it is early and often. So once you’ve determined you’re going to grow through acquisition, it’s often best to formulate your thinking—once you’ve thought about your ideal target—to engage in a conversation with an M&A advisor about that: what do they see in the market, how available are these types of targets, how much experience have they had in doing deals in the space, etc. Then engage them to do the full life‑cycle of assisting you to get that done.

If you try to piecemeal it or try to bring them in later—or you’ve already identified a target and now you need help getting it over the line—you certainly can get value, and we’ve certainly engaged with many clients farther through the process, but you probably sub‑optimized your process by not having a fulsome suite of choices early and then being able to select the best targets to buy.

Understanding that you’re augmenting your team, corporate development with a world‑class corporate‑development function that has specialists in all aspects of what’s required, obviously should lead to a much better outcome than you would have without those resources. It’s like having experts in dozens of different domains in the M&A process all working for you at the same time—that’s a pretty good formula for success. I would say the smartest folks engage early when they’re contemplating acquiring a firm in the space, get advice and counsel from a proven buy‑side M&A advisor with niche‑domain expertise, and then engage them to help them through the full journey.

Ryan Barnett: Right. I absolutely agree: that advisor is alongside you the entire time. When I think about this and the engagement process and someone’s getting ready, they’ve got enough homework to start a strategy that says M&A is important—and sometimes that’s driven by a private‑equity firm or an investor who’s looking to get more out of their investment. Sometimes the timing—like we’ve seen, there are investment cycles in which you need to perhaps get over a certain revenue target to meet your objective in selling your firm.

So oftentimes we’ve seen cases where people build a great asset but realize that if they can tack on another $10 million in revenue and $2 million in EBITDA, they could perhaps reach a different revenue and EBITDA threshold to actually make their investment exponentially more valuable. We do see engagement from firms bringing us in later in a cycle as well to hit that last stage of growth, then eventually looking for a recapitalization or another movement into another firm to really maximize those initiatives.

Mike, how long does a typical buy‑side process take—from kickoff to close? What should a firm budget for, just understanding the process of utilizing an advisor, or even without an advisor, what’s the expectation of timing that a CEO should think about when looking to buy another firm?

Mike Harvath: Well, I think sometimes there’s some misperceptions in the market that if I go hire a buy‑side advisor, they should have all these sellers ready to go. I think that’s a false impression of how the market actually works. The reality is a credible firm that does buy‑side will help you identify the ideal target for you on a variety of different attributes, and then they’ll go find the firms that fit that profile, right? You can’t do that if you just, quote‑unquote, have companies in the basket for sale.

It’s not likely one that will fit your profile exactly or very closely, and so it is a process. You have to engage in an active outreach campaign to find the ideal target and convince someone to come to the table. I often say it takes time—it’s hard to predict the future—but I’d say on average it takes three to six months to find the target, and then it takes you about 90 days to close from the time you get to LOI. It could take longer; it could take less time—it just depends on how the market is now, what profile you have, the size of the addressable market for that target, and whether it’s over‑fished or not.

There are a lot of variables—I don’t want to sugarcoat it in any way. Certainly our fastest processes have been from kickoff to close in five months, and our longest have taken over a year. It depends on the complexities of the individual mandate.

I would tell you success and the spoils go to the patient—people who are patient as you work through this process. It’s proven; we know it works. The longer you’re in the market, the better. There are interesting statistics that it takes 11‑plus touches to try to get someone to respond to you; multi‑channel is important; you have to be very targeted in your approach and messaging, and your persistence matters. That takes time—you can’t call someone 11 times in one day and expect they’re going to pick up.

So the most successful programs we have on the buy‑side happen with people who are the most patient. They do multiple deals typically that fit their profile—they’ve grown their business more quickly than others through M&A because they’re patient about finding the right targets. The drumbeat of outreach and finding the right targets ultimately does pay off—it just can’t pay off in 30 or 60 days. I’d encourage listeners thinking about this that the more patient you are, the higher the likelihood you’ll be successful with a buy‑side campaign using an advisor.

Ryan Barnett: Absolutely. And to your point, I just want to emphasize that you really can’t contact someone so much in one day. Oftentimes this is a germinating process: you’re planting seeds, those seeds grow into bushes and trees, then you’re going to at some point harvest the fruit that comes from those trees, but it does take a lot. We’ve had some cases—in Revenue Rocket we’re very specialized in what we do so we’re working with a relatively small group of people in IT services, so they’ve heard of us, so they’ve been educated on what it means to be an IT services firm and grow—so hopefully that accelerates, but getting hold of someone in today’s environment, getting them to engage and actually sell takes a bit, and that third‑party resource can really do things that your firm would struggle to do.

Mike, I just want to transition and ask a few more questions, but I think they’re important. When you look at the advisory mindset, what should someone expect a fee structure to look like when they look to a third party? We don’t have to get into specifics of how much, but what kind of fee arrangements do third‑party advisors typically use, and how does that look, and how should a firm evaluate that fee structure versus the value they’re getting out of the work?

Mike Harvath: Great question, Ryan. I think most credible buy‑side advisors charge a retainer plus a success fee, and there are specific reasons for that. If they’ve built a firm of scale with specialists—we’ve talked about investment that’s gone into hiring, maintaining, and cultivating the skills of those specialists—there’s ongoing training and skill development, and just good care and feeding for those professionals to grow their skills. When you pay a retainer, you can think about it as getting expertise—a fractional expertise of all of those people on the team. It’s a number far less than it would cost you to hire those people, even on a part‑time basis. You’re getting quite a bit of leverage by using an advisory firm like Revenue Rocket because they have systems, people, and process, and you’re paying a small fraction of what it would cost to operate that business and have access to those team members.

Your options are: hire them all, build the processes, and buy all the tools. When you think about that in the context of the retainer, the retainer is a small price to pay. The success fee is certainly part of the fee structure, but it is a way for people to share in the success of getting a deal done—that is a very hard thing to do. It’s an incentive for everyone to move the deal towards the goal line as quickly as possible and ultimately compensate for the full investment that it takes on behalf of that M&A advisor.

Most credible firms do it with a retainer and success fee. It’s pretty hard to do it otherwise. You will find contingent buy‑side advisors out there, but they’re typically either not going to commit the time, energy, and resources needed to be successful—meaning they’ll just be passively looking or passively thinking about your mandate, and if they happen to stumble across one, they’ll bring it to you, which likely isn’t going to net any success—or they’re a very small, low‑cost operation that does not have these individuals, roles, processes, and tools needed to be successful, so their success rates are going to be much lower.

There are a lot of questions around that in the market about contingent advisors, but it’s a bit of a buyer‑beware—you need to understand what you’re buying and you get what you pay for when you look at contingent versus retainer plus success‑fee models.

Ryan Barnett: That’s great. Mike, we covered a lot: timing and when to do this; that if you’re looking to accelerate growth, have a stable company and strategy, it’s a great time to bring on an advisor. There are readiness components—strategic, cultural, financial fit—and once they’re on board they can engage. I heard a process can take six to nine months; being patient is critical; prepare to budget some, but it’s probably less than doing it full‑time yourself. Ultimately the advisors you’re working with are looking for a successful transaction.

Any last comments or thoughts?

Mike Harvath: No, I’d just say the fastest‑growing firms in the market, the ones that are most successful, combine organic with an inorganic process. They grow and are at the front of the line from their peers for growth and profitability organically, and then they layer on a well‑run M&A strategy that accelerates that excellence. The firms that do it best are smart enough to know they don’t know it all—that they can’t have all the same level of execution talent to get it done quickly and efficiently, unless they outsource it to an M&A advisor that’s already built that with a proven tracker.

With that, we’ll tie a ribbon on it for this week’s Shoot the Moon podcast. I encourage you to tune in next time when we’ll unpack further stories from the road—things that we see in the market as an M&A advisor—and I’ll leave you with our new tagline here at Revenue Rocket: we are M&A people. Think of us when you need some help if you’re an IT services company in the M&A realm.