At the Austin Dale Group, we work with owners of privately-owned technology companies to realize optimal value. Entrepreneurs often ask us how the process of selling a business works and what they need to do to make sure their company is in the best position when they get ready to sell.
To give entrepreneurs a real-world perspective we have documented this recent example of a multi-year relationship where we helped our clients grow and eventually sell an IT Services company.
ON Technology provides IT services to businesses and government agencies in the extended suburbs near the high-tech city of Austin, Texas. ON Technology was a spin-off of a wireless Internet business founded and previously sold by Cliff and Kaitlin Olle.
When Cliff and Kaitlin sold their wireless company, the IT services division did not fit into the business model of the acquirer. The Olles elected to buy the IT Services business back from the acquirer as a standalone entity. In considering options for this entity, they contacted the Austin Dale Group (ADG) for advice.
Initially we worked together to determine the market value for their business, which was modest after the initial spin off from the predecessor company. The Olles decided to retain and grow the business, hoping to achieve a higher valuation in an eventual sale. They retained ADG as a strategic growth advisor with periodic check-in discussions to determine progress and fine-tune growth strategy.
Kaitlin Ollie commented, “After our initial price evaluation, ADG made recommendations to us to help us increase our value. We implemented every suggestion and are very pleased with the results of their guidance.”
Ultimately, the Olles felt the time was right to sell the business, both due to growth in valuation and their progress in developing other businesses in parallel, which needed their undivided attention.
The Olles have several businesses and are well invested in their community. In addition to financial outcomes for the sale of ON Technology, they wanted to ensure that the critical services that ON Technology provides to government and business customers would continue to be delivered with high quality and reliability. They also wanted to ensure that their employees have great career opportunities.
The first step in any M&A engagement is a comprehensive review of the business. ADG looks at all aspects to identify strengths, weaknesses, and issues that could derail a deal. Given our long relationship with ON Technology, the business review went quickly.
The company had been managed in an exemplary manner. The Olles used best practices for running an IT services business and applied ADG’s advice for an eventual sale.
Kaitlin Ollie commented, “ADG was able to help us see that as owners, if we ever wanted to sell, we had to be replaceable. It was a hard mindset to get into since as an entrepreneur you like to see yourself as irreplaceable, but once we started thinking that way, not only did we allow our team to take on more of the critical work, it lightened our load and allowed for us to rest and refocus our energy on company growth and not day to day tasks.”
From our extensive experience in the IT Services market, Austin Dale Group compiled a list of several hundred potential buyers for ON Technology.
With the blessing of the owners, we contacted prospective buyers about the opportunity and provided a Teaser document to spur interest. We also posted the opportunity on specialized websites catering to financial and strategic buyers.
We found a significant amount of interest for multiple reasons:
Numerous prospective buyers executed NDAs and reviewed the information we had compiled in the Confidential Information Memorandum (CIM).
Our sales process resulted in a competitive interest from multiple buyers. We met with many interested parties, including private equity, strategic acquirers, and high-net worth individuals. Given the level of interest, we had the ability to be selective and pare down the list to the best buyers.
The “winning” buyer provided the best combination of valuation, future strategy for the business, and a compelling roll-over equity opportunity for the Olles.
The Due Diligence process can be tedious and time consuming for all parties. It can also be a relatively fast process if both the buyer and seller are well prepared. In this case, the seller was very well prepared. They were able to satisfy the buyer’s desire for a quality of earnings review on an expedited basis, which validated the financial strength of ON Technology. The buyer and seller also worked together on a survey with customers who confirmed their satisfaction with ON Technology. We were able to work through the due diligence process in less than 60 days.
The definitive sale agreement is generally negotiated in parallel with Due Diligence. In this case, there were no major disagreements in negotiating the definitive agreement.
As with any major contract, attorneys are involved to negotiate the language of the transaction. Some terms required multiple rounds of negotiation, but both sides negotiated openly and honestly and completed the process feeling that they had achieved a fair agreement.
Closing a transaction is all about timing and coordination. Legal, financial, communications, and human resources all must be synchronized to affect the transfer of ownership.
While every transaction is different, there is usually some type of last-minute complication that injects a bit of stress and causes all parties to sigh with relief when the transaction is closed.
On this deal, closing was originally scheduled for the end of April 2020, which landed right in the middle of a global pandemic. The lockdown associated with the pandemic caused complications with site visits and coordination of the closing activities, but the team found workarounds for those issues.
The biggest issue was turmoil in the financial markets. The original funding sources that the buyer had intended to use were affected by the pandemic and there was a period where the lenders simply stopped lending. Part of this was due to economic uncertainty and part of it was due to the unprecedented wave of applications and loans associated with the Coronavirus stimulus programs guaranteed by the federal government.
Once the torrent of PPP loans subsided, lenders wanted to see financial results from second quarter 2020 to determine ongoing profitability and risks associated with acquirer companies and with acquisition targets.
Demand for IT services continued throughout the lockdown and ON Technology continued to grow, as did their proposed acquirer. Ultimately the acquirer was able to secure funding for the transaction and the deal closed, almost six months after the original planned close.
Austin Dale Group is an M&A advisory firm based in Austin, TX. Our clients include software companies, cloud solution providers, and IT managed services – as well as healthcare and other tech-enabled businesses.
We specialize in M&A and strategic growth advisory services for middle-market technology businesses with revenues up to $75 million. We help our clients prepare for a merger or acquisition, build shareholder value, and sell their business (or divest a division). We also work with companies that wish to acquire other companies as part of their growth strategy.
Get in touch with us and learn firsthand how our processes will help your merger and acquisition activities go smoothly at any company size.