|Deal completed in:||14 months|
An established IT support and managed services company, based in London with a helpdesk service office in Cape Town South Africa. The company’s clients are based in and around London with the majority subscribing to a support and managed service contract. With a total revenue of £2.1m, 75% of revenue is paid in regular monthly instalments.
Having co-founded the company in 2001, the vendor had bought out his partners a few years before coming to us. During this time he had successfully orientated the company’s focus to being a provider of managed services under contract which brought both a secure revenue stream and improved profitability. However having acquired his partners’ shares, he lacked the financial resources to enable to company to grow further.
We often deal with companies which have reached this ‘tipping point’, where the owners need to invest significant funds to boost sales and marketing activities as well as employing more senior level financial and operations management, but where the owners have invested significant amounts already to get to this point and are reluctant to invest more of their personal funds.
These situations create an ideal opportunity for strategic trade buyers to acquire established and secure businesses – growing contracted revenue organically in the IT sector is difficult. In addition, trade acquisitions open up opportunities for cross selling and synergy savings. For example in this case, the buyer will be using the South African helpdesk operation to support their existing client base.
For owners there is the opportunity to realise a full and premium value for their business.
What Hornblower did
A third of our company sales are of Information and Communications Technology companies. As a result we are well connected to the serious players in this sector. We were able to generate quickly a market for the company from which we received 10 serious offers. Working closely with our client, we selected the top three preferred bidders with whom we negotiated for their best offer. As deals in this sector often involve the vendor working with the buyer for a period of time, the process also allowed him to assess who he would prefer to work with.
The process resulted in the vendor being faced with quite a difficult decision between two leading bids…
Our client accepted an offer from a private equity backed provider of cloud services based in the South West UK. With a revenue of £5m, the acquisition represents a significant uplift in contracted activity for the buyer, and the opportunity to cross-sell both the vendor’s IT support and help desk capability into their client base and their cloud based solutions to the vendor’s clients, as well as gaining a presence in London and Cape Town. The buyer has ambitious growth plans and is actively looking for further acquisitions.
For our client, he has the opportunity to participate in this growth, both as a member of the buyer’s management team and a shareholder in the buyer’s company. Having realised a significant portion of the value of his business at this point, the eventual exit of the buyer company presents the vendor the opportunity to leverage the value of his own business today and achieve a much enhanced return in 3 to 5 years’ time.
SOLD – October 2015