Shoot the Moon with Revenue Rocket

Mike Harvath, Matt Lockhart, and Ryan Barnett discuss the successful M&A process for Project Black Sparrow, a $19M managed service provider. Revenue Rocket assisted Black Sparrow on both the buy-side and sell-side, helping them identify and close strategic acquisitions. The sell-side process involved evaluating over 500 companies, narrowing down to 25 potential buyers, and ultimately closing a deal in less than six months. The transaction highlighted the importance of strategic and cultural fit, leading to a smooth due diligence and a successful partnership.

1. Helping them grow through a Revenue Rocket Buy-Side Program
2. Helping them grow with deal facilitation/valuation expertise
3. Converting to a Revenue Rocket Sell-Side Program
4. Valuation on the business
5. Packaging and marketing
6. Deal flow (150 screening calls leading to NDAs, 20 IoIs, select LOIs)
7. Due diligence support
8. Role of the buyer – and how the winning LOI was landed (more about the vision than the specifics)
9. Keeping owners focused on the business while we ran the process
10. Exceeding expectations for value, timing
11. Exciting future ahead.

RELATED EPISODES:

Episode 80: Seller's Perspective: Due Diligence. Listen now >>

Episode 88: Sellers: Timeline Expectations for an M&A Deal. Listen now >>

Episode 119: Breaking Down a Successful Sale of a $13M MSP. Listen now >>

Episode 139: Breaking Down the Successful Sale of Project Deacon. Listen now >>

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

OUTLINE OF THIS EPISODE:

• M&A Negotiations Introduction
• Setting the Tone for Fairness in M&A Negotiations
• Balancing Interests in M&A Transactions
• Transparency and Trust in M&A Negotiations
• Deal Fatigue and Negotiation Strategies
• Impact of Win-Win Negotiations on Post-Transaction Relationships

RELATED EPISODES

Episode 174: Buy-Side M&A: Tackling the most Challenging task of Finding a Willing Seller. Listen now >>

Episode 143: Perfect in M&A Doesn’t Exist: Learn Where you can Flex. Listen now >>

Episode 100: Looking back at 100 Episodes and Narrowing in on Working Capital. Listen now >>

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

KEY HIGHLIGHTS OF THIS EPISODE:

• Definitions and Roles of Brokers
• Understanding fee structures on the buy side and why it matters
• retainers & fees
• Revenue Rocket's Model (Retained Advisor) vs. Contingent Brokers
• Exclusivity and Opportunistic Nature of Contingent Brokers
• Referral Fees and Market Dynamics
• Contingent vs Retainer based - expectations for success

RELATED EPISODES:

Episode 125: Value of an Industry Specific M&A Advisor. Listen now >>

Episode 92: Why You Should Take the Call from an M&A Advisor. Listen now >>

Episode 91: M&A Fees: What to Expect Before, During, and After Close. Listen now >>

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

Reselling today is not the same as reselling was yesterday. Reselling today is not the same as reselling was yesterday. Mike Harvath and Ryan Barnett dive into reselling in the tech-enabled services industry. They note the impact of cloud-based services on reselling margins and the importance of building a robust services business to complement reselling. They also discuss the challenges and opportunities for private equity firms in valuing reselling businesses, emphasizing the need for advisory firms like Revenue Rocket to navigate the complex landscape.

Episode Outline:

• Reselling's Evolution and Its Impact on M&A
• The Renaissance of Value-Added Reselling
• Challenges and Opportunities in Specialty Reselling
• The Role of Private Equity in Reselling
• The Future of Reselling and Its Impact on Customers

Related Episodes:

Episode 178: The Pros and Cons of IT Reselling in M&A Transactions. Listen now >>

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

This episode of Shoot the Moon covers Buyer & Seller perspectives in the last week(s) leading up to close.

RELATED EPISODES:

Episode 83: The 11th Hour. Listen now >>

Episode 154: What Will be Your Take Home Portion of the Deal? Listen now >>

Episode 158: Between the LOI & Deal Close, What should you Expect? Listen now >>

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

Utilizing Marketplaces for M&A Deals. Third party marketplaces have really emerged in the past few years. These are services that a buyer or seller subscribes to to find deal related information and oftentimes try to match your company as best as possible through AI or manual matching. 

Matt Lockhart and Ryan Barnett discuss the evolving landscape of third-party marketplaces for M&A transactions in the tech-enabled services sector. They highlight the increasing interest in these marketplaces, driven by the growing recognition of the value in tech services firms. They note that while marketplaces like Axial, PE Marketplace, and GRV Source can broaden the pool of potential buyers and sellers, they also present challenges such as the generalized nature of listings and the need for specialized understanding and marketplaces are a useful tool but should be part of a broader outreach strategy.

1. The use of third-party marketplaces like BizBuySell, DealStream, Axial, and PE Marketplace for finding and selling businesses.
2. Marketplaces can be a useful tool to increase the top of the sales funnel, but require careful curation and alignment between buyers and sellers.
3. Buyers using marketplaces may not always have deep industry expertise, leading to potential misalignment.
4. Sellers should proceed with caution when using marketplaces alone, as significant work is still required to properly prepare a business for sale.
5. Advisors can play a critical role in helping both buyers and sellers navigate the complexities of the M&A process.
6. Competition for deals can increase when using marketplaces, as the goal is to get in front of as many potential buyers as possible.
7. Buyers should view marketplaces as one tool in their inorganic growth strategy, not the sole source for finding acquisition targets.
8. Proper cultural, strategic, and financial fit are essential for successful transactions, regardless of the sourcing method.
9. The group discussed the recent podcast episode on "Buying a Company is Not Like Buying a Car" and the importance of this mindset.

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

Mike, Ryan, and Matt from Revenue Rocket discussed  the importance of understanding the strategic, cultural and financial fit when evaluating potential buyers in tech-services M&A transactions, emphasizing the need for a comprehensive approach beyond just financial capability. They highlighted the complexities of M&A transactions, the emotional aspects for founders, and the role of a competent advisor in navigating the process and ensuring a win-win scenario for both buyers and sellers.

Key points

    1. Buyers often approach acquiring a company like buying a car, but sellers see it as a complex partnership that requires strategic, cultural, and financial alignment.

    2. Sellers, often founders, have built their business with blood, sweat, and tears, and are protective of their team and customers when considering a sale.

    3. Buyers need to approach the process with an open mind, seek to understand the seller's perspective, and demonstrate how they can create value together, not just offer a price.

    4. Advisors play a critical role in facilitating the right buyer-seller fit, rather than just facilitating a transaction.

    5. Sellers are looking for buyers who are a good cultural and strategic fit, not just the highest bidder.

    6. Buyers making offers without proper diligence or understanding the seller's motivations can be a turnoff for sellers.

    7. The introduction and early interactions between buyers and sellers set the tone for the entire process.

    8. Buying a company is a complex, relationship-building process, not a simple transaction like buying a car.

    9. Sellers have leverage in the current market and can be selective in choosing the right buyer.

    10. Advisors can help both buyers and sellers navigate the process and find the best fit.

Immediate turn offs for sellers from buyers:

• Coming off too strong of how to run a business vs trying to understand the seller's business model - sellers need to know that the buyer is low risk for their employees, customers, and have an open mind about how to do things as a combined entity. This challenges the success of post-merger integration
• A buyer's attitude about their successful past
• Be careful what documents you put in front of a seller too early
• Blowing the introduction call - this meeting sets the tone for the entire process between both parties! Take it seriously

Our job is to help buyers & sellers find the best cultural fit, strategic fit, and financial fit to make a win-win-win scenario for all parties. This has been our speciality for IT Services firms for 25 years. Reach out to schedule a no obligation introduction call.

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

EPISODE OUTLINE:

• Partnerships in business and their importance in growth.
• Valuation and buyout considerations for businesses with multiple partners
• The importance of documentation, shareholder agreements, operating agreements and more
• Valuing a business for partner buyout or sale, importance of credible outside counsel, and potential impact of a departing partner on continuity
• Managing partnerships, exit strategies, and value creation in business

RELATED EPISODES:

• Episode 168: Adjustments to EBITDA and Valuation based on Owner Comp. Listen now >>
• Episode 162: Aligning Leadership in M&A for a Better Deal Outcome. Listen now >>
• Episode 144: Navigating Exit Strategies: What are your Options? Listen now >>
• Episode 136: CEO and Leadership Transitions When Selling your IT services Firm. Listen now >>

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

We talk alot about Multiples of Revenue & EBITDA when it comes to an M&A deal. In this episode we are unpacking how we use them, why they are important, and how buyers & sellers can align when it comes to deal multiples.

1. What is a multiple?
2. Why are multiples used in M&A deals?
3. How is a multiple calculated? Does it include items like cash harvest or employee agreements?
4. Based on different categories, different sub-industries in tech-enabled services will warrant different multiple ranges. What are some of those categories and ranges?   For example: Staffing companies, resellers, custom app dev, CSPs, MSPs, cybersecurity, generative AI
5. How do other items, like size, geography, vertical market concentration in clients, impact a multiple? How do non-financial factors like culture impact a multiple?
6. How do Revenue and EBITDA multiples interact? We’ve seen firms with high profit margins result in deals that are 2-3X revenue.
7. If someone hears a multiple, it feels like they hear either the highest number if they are trying to sell or the lowest if they are trying to buy. How do you explain the nuances to a buyer or seller?
8. If multiples are more of a gut check on the proper ranges of a deal, how often are M&A enterprise values tied directly to a multiple of EBITDA?
9. How important is it to get the proper deal comparisons if multiples become a method of comparing two firms?
10. If a deal is based on a multiple of EBITDA, how do buyers and sellers agree what is in or out of adjusted EBTIDA?
11. What are examples of firms that traded well outside of an industry norm for a multiple?

EPISODE SUMMARY:

• Multiples, such as a multiple of EBITDA, are commonly used in M&A deals as a simple way to gauge the value of a company. However, they are not the sole determinant of a company's valuation.
• Adjustments to EBITDA, known as "add backs", can be made to account for one-time expenses or other factors that will not continue post-transaction. The agreed-upon adjusted EBITDA is a critical factor in determining the multiple.
• Many factors beyond just the EBITDA multiple impact the final enterprise value in a deal, including strategic fit, cultural fit, and buyer synergies. The multiple is more of a planning tool than a definitive valuation.
• Higher profitability tends to correlate with higher multiples, while lower profitability may not support a revenue multiple above 1x. Finding truly comparable companies can be challenging.
• Deals sometimes trade outside of typical multiple ranges due to strong strategic fit or other unique factors, highlighting that multiples are not the only consideration in valuation.

RELATED EPISODES:

Episode 141: Add-Backs 101. Listen now >>

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

Questions we dive into in this episode all about building relationships with a banking partner for M&A deals:

• What role do banking partners play in M&A deals within the IT services sector?
• What key criteria should companies consider when evaluating potential banking partners for M&A transactions?
• How do you assess the experience and expertise of a banking partner in the IT services industry?
• How important is the relationship between the buyer and the banking partner and what signs indicate a trustworthy and reliable banking partner?
• How can a company evaluate the financial strength and stability of a banking partner?
• How can buyers effectively evaluate the interest rates offered by different banking partners? What factors should be considered when comparing interest rates from various banks?
• What strategies can buyers employ to negotiate better interest rates with their banking partners? Are there specific terms or conditions that buyers should focus on to secure favorable rates?
• How do interest rates impact the overall cost of financing an M&A deal?
• How should companies assess the track record and success rate of a banking partner in previous M&A deals?
• How significant is a banking partner’s reputation in the IT services industry and what methods can be used to verify and evaluate a bank’s reputation?
• What role does the banking partner play in the due diligence process during an M&A deal?
• What will you need to provide to secure a loan?
• How do banking partners assist in identifying and mitigating risks associated with M&A transactions?
• How can buyers evaluate and compare the fee structures of different banking partners?
• Are there any hidden costs or fees that buyers should be aware of when working with a banking partner?

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.