28 Jan Creating successful mergers and acquisitions
If you are interested in a Merger or Acquisition this year, here are some stand-out findings from the latest survey from of Equiteq, an advisory and M&A firm focused on the global consulting market, that you NEED to know about:
Mergers and Acquisitions
13% increase from 2013-2014
47% of companies expect growth to be driven equally by organic and acquisitive strategies
29% of companies expect growth to be driven mostly by acquisition
To put all of these numbers in perspective, consider this: it was only a few years ago when we told prospective buyers and sellers to expect multiples in the range of 4-6 times trailing 12 month earnings. Today, we are looking at multiples in the range of 7-9 times 12 month trailing earnings, and now we’re advising clients that it is not unusual to expect a multiple of 10 times earnings.
To make the most of an M&A deal, however, there are a few key actions you should take.
The key to successful acquisition
With most things in life, quality comes with a price, and quality companies command high multiples.
Clearly, there is a right (and a wrong) way to do things. So what are a few of the right things that quality companies have, and what should companies looking to be acquired do to achieve the same results?
Be a Microsoft partner.
According to the Equiteq survey, “Microsoft expertise continues to be the largest vendor capabilities associated with IT consulting M&A deals”. In fact, 47 percent of all IT Services M&A transactions are with Microsoft Partners.
With numbers like that, it’s obvious that partnering up isn’t an option when considering mergers and acquisitions—it’s a necessity.
Be in the right industry.
Knowing what areas of the market M&As are occurring in the most is vital.
A hint: that same Equiteq survey shows that the industry segments most in demand are Business Intelligence, Mobility, Big Data, Telephony, Business Process Management, Security, and Compliance.
You’ll need to ensure that your business not only looks good to prospective buyers, but that you’ll be prepared for the changes. Here are a few of our suggestions:
- Strive to achieve double-digit annual growth in both revenue and profit. Use the Partner Profitability site for tips.
- Have a healthy balance sheet with strong retained earnings and minimal debt.
- Maintain a strong backlog of work and orders.
- Offer a clearly differentiated service, ideally positioned as No. 1 or No. 2 in your market, which should be a confluence of a vertical market and a technology focus.
- Ensure that recurring or subscription revenue makes up at least 30 percent of total revenue. More is better.
- Create a continuous stream of one new breakthrough expansion strategy per year. Maybe it’s an expansion into a new geography or a new service line. It could even be a new delivery system, just make sure you’re setting yourself up for some vitality.
As you can see from the Equiteq numbers, deal activity is high, and it’s continuously being propelled by the ongoing demand for the innovative, customer-demanding technologies offered by Microsoft partners. Read the full survey to see the numbers for yourself and learn more about the state of mergers & acquisitions in today’s market.
What you will find, to put it simply, is it’s a good time to be a Microsoft partner if you are thinking of buying or selling.