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Mergers & Acquisitions for System Integrators: Building, Preparing & Realizing Value

This is the first in a three part series on Mergers & Acquisitions topics addressing the Control System Integrators Market

Whether an owner will eventually sell his or her company, or give it to children or management, it is advantageous for an owner to take steps to improve company value. The stronger the fundamentals of a company, then the more options an owner will have going forward.

The following are suggested ways that a system integrator can improve value:

  • Talent – To bolster the services of a firm, owners should focus on hiring and retaining quality engineering and project management talent. The company’s “talent bench” should be deeper than just the owner.
  • Client Markets – The client industries that a system integrator focuses on are a significant driver of an integrator’s success. Even with the best strategic plan and execution, an integrator can face restrictions should it service industries that are stagnant or in decline. Current examples of attractive, higher-growth markets include: chemicals / petrochemicals, packaging / materials handling, and food and beverage.
  • Diversification – In addition to addressing attractive client markets, it is important for a system integrator to service a significant number of clients. An integrator should aim for a client generating no more than 20% of total integrator revenues for a given year. The “less eggs in one basket” for an integrator, then the more value that a company can demand.
  • Recurring Revenue – While project-driven work is expected with most system integrators, buyers and financial investors place a heavy premium on long-term contracts and multi-year projects that demonstrate sustainable, recurring revenue.

Other areas that a company can improve include financial reporting and strengthening its sales / marketing team. It is the goal of most businesses to plan and work towards maximizing their fullest potential and value. When that happens, the buyer’s market certainly recognizes and rewards solidified the fundamentals of success.

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Mergers & Acquisitions for System Integrators: Building, Preparing & Realizing Value

This is the second in a three part series on Mergers & Acquisitions topics addressing the Control System Integrators Market

There can be numerous reasons why the owner of a system integration firm may want to sell some or all of the company. Those reasons could include, but are not limited to, retirement, poor health, or a capital need to help further grow the company. Regardless of the reasons why, there are immediate steps an integrator owner is recommended to take in the six to twelve month lead-up to a sale process.

Establish a Key Advisor Team:

  • Wealth and Tax Advisor(s) – Professionals assist the owner in minimizing transaction taxes through pre-sale initiatives and advise on how to best invest post-sale tax proceeds.
  • Corporate and M&A Attorney – experienced attorney that focuses primarily on Mergers & Acquisitions transactions.
  • Accountant / CFO – A company accountant, or a company Chief Financial Officer (CFO), can assist during the critical financial diligence portion of a sale process.
  • Investment Banker – Advisor, experienced to the system integration space, that manages the sale process, delivers buyer options, and drives best value and terms for a seller.

Incentivize Senior Management: For senior management’s benefit, an owner should consider providing equity, phantom equity, or a transaction bonus. A buyer usually likes to see senior managers receive cash at close, or an ability to reinvest equity into the company with a new majority owner, in the interests of keeping management motivated and committed to the company.

Solidify Books and Records: Ensure the company’s accountant, or the company’s CFO, has completed the annual and interim company financials as well as the latest tax returns. It is also important to understand owner-related expenses included within the company’s financials. Examples of these adjustments include excess rent the company may pay for use of real estate owned by the business owner, country club dues, owner auto expenses, and salaries paid to family members inactive in the business.

The immediate steps that an owner and his team take prior to a sale process can be critical in a successful and attractive exit. These elements can be vital when the buyer interviews and selection begin and the due diligence process takes place.

Clint Bundy is a Managing Director with Bundy Group, a boutique investment bank specializing in business sales, capital raises and acquisitions for the system integrator market.