Who would buy your IT support / telecoms business?
Article updated 19th June 2023
No matter where you are in the world, the types of people who buy businesses are, typically, the same. And those looking to acquire companies tend to fall into four categories.
While the type of buyer varies according to the size and nature of the company, the four categories are:
- Trade / Strategic buyers
- Private equity with management buy-in
- High net worth investors with industry experience
- Entrepreneurs with spare cash of £200k to £1m
To help you understand the different categories, we have summarised each of them below.
Trade/strategic buyers
These buyers are existing companies that are in similar or aligned sectors. They are looking to expand and/or diversify. Whilst direct competitors may be interested in acquiring their competition’s client base, they do not tend to offer the highest value.
The best trade buyers are those who have a strategic objective. For example, to extend the coverage of their service into another geographic region or to add a complimentary service to their existing business and open up the opportunity to cross-sell to the merged client base.
With IT support and telecoms businesses, buyers need to have specific industry knowledge and capability.
Private equity with management buy-in
These buyers are usually looking for businesses with annual revenues of over £5m and a net profit of over £1m. There is a growing number of small private equity firms looking at a variety of industry sectors and the smaller end of the market.
They look particularly at the growth potential and obviously the return on their investment and often have a pool of management buy-in candidates with the relevant industry knowledge to take charge of the business post-acquisition.
High net worth investors with industry experience
These buyers are often business owners in their 50s and 60s who have recently sold businesses for substantial amounts. Left with time on their hands, they don’t want to retire early. They are, therefore, looking for a smaller business in the industry they know, to which they can bring their experience, contacts and financial backing.
Entrepreneurs with spare cash of £200k to £1m
These buyers fall again into two categories:
- Those who have built up their cash reserves during a successful career, for example in the city or a large corporation. Having left the corporate world they are looking for something more interesting to invest in and manage than the alternative of property or leaving the cash in the bank.
- Serial entrepreneurs who build businesses over a period of 3 to 5 years with the purpose of selling and starting again on a new venture. Either way, these buyers tend to be looking for small, sub £1m turnover, highly niche businesses.
What about IT support and telecoms businesses?
When it comes to IT support and telecoms businesses, most buyers fall into the trade or strategic criteria. They are looking to acquire firms in similar markets so they can expand quickly and increase their client base.
And with a buoyant market, IT support and telecoms companies are an attractive proposition. Figures show that there will be 7 per cent market growth in 2023 for IT support companies. And telecoms businesses are also part of a growing market.
Analysts at Global Data say that the value of sales in the UK’s telecoms businesses will grow by at least 2 per cent in 2023. This makes acquisition attractive to those businesses wanting to increase their market share.
For larger ICT businesses with revenues over £5m and net profit over £1m, private equity firms start to be interested.There is a growing number of small private equity firms looking at acquiring IT support and telecoms businesses, especially because there is a high proportion of recurring revenue from clients tied into support/supply contracts.
As always, private equity buyers look at the growth potential and the return on their investment and often have a pool of management buy-in (MBI) candidates with the relevant industry knowledge to take charge of the business post acquisition. Typically, they will be looking to acquire several IT support and telecoms companies in order to build a large group company where the valuation multiples are somewhat higher.
Would you consider selling your IT support / telecoms business and becoming part of a larger group?
We would be delighted to offer you a free appraisal of your business to give you guidance on its value and attractiveness to buyers, and whether now is the right time for you to sell. Our appraisal can take the form of either a face-to-face meeting or a telephone call, as you prefer.
Please contact us on 020 8090 9380, email [email protected], or complete the form below to arrange an appropriate time to review your exit strategy and the value of your business in confidence and without obligation.
This article originally appeared as part of our series of e-Tutorials for the Sale of IT Support & Telecoms Companies.
