How Rogerson Business Services Sold An IT Services Business In Seven Months
IT Business For Sale
A vibrant IT services company based in Sacramento, California was providing quality managed and technical support to small-to-medium businesses.
Their hybrid model combined the best of both worlds for these local enterprises looking to optimize their operations through IT technical assistance.
With a passion for information technology and an eye on the high demand in Sacramento's business community, the owner decided to dive into providing managed IT services.
By quickly differentiating himself from his competitors he achieved instant success; this was his 'secret sauce' that would fuel growth until January 2023 when ownership of the business changed hands.
The owner of the IT business, based in Sacramento, California, said: "Andrew has great ideas, I'm a one-man show and so Andrew suggested I hire some employees to make the business easier to sell but it wasn't something I wanted to do. It may have put off some prospective buyers, so the advice I take from this is to yield to Andrew he has some great insights."
Overcoming Challenges In The Sale Process
Selling a company requires an astute eye for finding motivated buyers - and IT businesses have their own set of complexities. It takes extra diligence to navigate the sale successfully!
With an IT business in such high demand, the challenge was to decide which of the 80-plus interested buyers deserved further consideration. But no matter how tough it was to narrow them down; it was important to only select a few buyers to ensure that those chosen would be given our utmost attention and care.
The owner said: “The best part was not only having qualified offers brought to me, but we did also not waste a lot of time dealing with unqualified buyers as Andrew would pre-screen them.”
Almost without exception, there is a mismatch between the seller and the buyer over different issues. Because the seller has lived and breathed the business and has made it successful, a buyer sees opportunities, but they want the input of the seller. This leads to a challenge!
Finding harmony between the seller and buyer to meet everyone's needs or the transaction dies.! In the sale of this business, the seller was quoted as saying: “With hindsight, I would have looked at what the market wanted and tried to restructure the business more online with the direction of the marketplace to capture a higher sales price.”
He continued by saying: “Patience is a virtue. Don’t come across in a hurry. Listen to the market and what the market wants as your business may not be fully in line with current trends and what a buyer wants. If you make the changes to your business model before selling, you’ll grab higher offers.”
After two failed attempts to close escrow, this deal was on the brink of never being finalized. However, undeterred by past setbacks and against all odds, it finally closed successfully in its third attempt - a testament to sheer determination!
Buyer
The buyer that successfully closed the sale of this California IT business, did so through a self-selection process.
The self-selection process means there were many buyer inquiries; as we mentioned earlier, there were over 80 buyer inquiries.
Most of the buyers looking to buy this business came from an IT service business and the business model they used is called a Managed Services Program or MSP.
The typical MSP wants their customer to sign a 12-month or more contract and in exchange, the IT Service business will provide technical support to keep the customers’ business up and running on an as-needed basis.
In many respects, this is a good business model for the IT service business but this is not the business model this business seller was using.
The seller’s business model was to offer what is called a Break-fix model. With the Break-fix model, the customer calls this business, explains their problem, and the business troubleshoots and fixes the problem and charges the customer for their time and expertise.
This business model served the seller of the IT business very well as customers enjoyed his troubleshooting and turnaround time. As part of the Break-fix model, the business was able to support office systems including networks, cable and wiring installation, new equipment sales, and telephone services.
The right buyer, therefore, came with an IT background having worked for a local IT company providing:
- Level One
- Level Two
- Level Three support
She was motivated to step out of a company with its service and business model restrictions and make a lot more money owning and operating her own business.
Seller
After two years of contemplation and different conversations with Andrew Rogerson about retiring and selling his business, the owner/seller finally decided to take the leap and seek assistance from Andrew to sell his business.
This was July 2022.
The seller felt so nervous stating: “Nervous very nervous, will I have enough money to make it after the sale? I did.” He continued this feeling until the deal was finally and successfully closed escrow on Friday, January 13, 2023.
To help increase the chances of the business successfully selling, the owner and Andrew Rogerson had conversations in 2020 and 2021 to identify any weaknesses that may come back to bite the owner.
One of the things they identified was the bookkeeping the owner had been using and it was decided this needed improving.
As a result, Andrew introduced the owner to Trinity Business Solutions and they were instrumental in improving the quality of the financial statements.
Andrew Rogerson employed successful off-market techniques to promote the business, generating a remarkable amount of interest with nearly 80 potential buyers. His discreet approach honored the seller's desire for privacy and resulted in astonishing results - proving his shrewd marketing strategy works!
The owner was quoted about how he felt about confidentiality and said the following: “Just the usual and did not share with others outside my family that I was looking at selling.”
The owner continues sharing his thoughts about the positive emotional part by saying - “well, when you have a business that’s been part of you for over half your life, it’s like letting your child walk to school the first time, it’s hard but a good feeling seeing something you created making it on its own.”
THE SELLING PROCESS
SELLING A BUSINESS PROCESS
An important part of the approach we use at Rogerson Business Services when selling a business and to increase the chances of success is to invest the time before taking the business to market to make sure everything is as clear as possible for potential buyers.
The Selling Process includes requiring a buyer to sign an Agency Disclosure per the California Department of Real Estate and also a Non-Disclosure Agreement or NDA.
The NDA also requires the buyer to provide a Personal Financial Statement so we know their ability to buy the business or qualify for finance such as an SBA loan.
In return for the buyer completing these documents, they can download from a secure website the following documents.
A One Page Executive Summary about the business.
A Confidential Executive Summary can be anywhere from 15 to 40 pages, depending on the complexity of the business for sale.
The Confidential Executive Summary includes many details ranging from the purchase price and what it includes, the history of the business, the reason it’s for sale, an overview of the customers the business services, the marketing the seller of the business has been using, a summary of the employees and any important related information, whether the business is also selling the real estate or if there is a lease in place, the terms and conditions of the lease and much more.
A Seller's Disclosure Statement.
This is a 4-page document the business seller completes and provides the buyer with information about licenses to own and operate the business, the seller's financial stability including the business, the status of the employee and independent contractors, disputes with the landlord, deaths or violent crime in the area if the business is a franchise, workers compensation claims by the seller and more.
Sample documents such as marketing material.
A list of Fixtures, Furniture, and Equipment that are part of the sale.
Any material specific to the business for sale so the buyer can determine their interest in the business.
If the business has been prequalified by an SBA lender so a buyer knows the downpayment, credit score, and management experience they need if they are thinking of getting an SBA loan.
The ultimate goal of making the time and investment in the above documents (and often there are more), is so the buyer has a clear understanding of the business when they first inquire and either continue with their inquiry to buy the business or drop out because this is not a fit for them.
It’s understood that only about 4% of buyers actually acquire a business and that only about 25% of businesses on the market ever sell.
The above attention to detail is to increase the odds of connecting a motivated seller with a motivated buyer and getting a deal done.
FINANCING THE DEAL
The most difficult part of the transaction was getting an SBA loan in place for the buyer of the business.
The SBA loan process was made difficult because one person operated the business and the lender wanted to feel comfortable the buyer had a similar skill set to the seller.
The buyer was exceptionally comfortable with her skill set and the lender seemed comfortable but different members of the SBA lenders loan processing team kept changing their minds, or at the last minute requiring additional documents or a new process to be followed.
NEGOTIATIONS
The due diligence process was relatively simple and seamless as this IT business was not complicated.
When COVID-19 came along in early 2020, the owner of the business closed down his office and moved the business to his house, and let go of the employees that worked for him.
The financial statements of the business were in good order as the seller outsourced this service to a third party.
The buyer was therefore quickly and easily able to ask her questions and receive the answers she was looking for.
LEAGAL AGREEMENTS
The buyer and seller worked off an Asset Purchase Agreement that Rogerson Business Services offered as well as other supporting documents.
ESCROW PROCESS
One of the best parts of this transaction was the escrow service offered by Glen Oaks Escrow in southern California.
Glen Oaks Escrow is a large southern California escrow provider. Their team of Cynthia Moller, Justine Kerrick, and Lynn Marquez was superb at working with the buyer, seller, SBA lender, and Rogerson Business Services.
As is normal in a transaction, there were difficult moments but the team at Glen Oaks Escrow was able to take things in their stride and successfully achieve getting the escrow closed.
SOLD
Andrew Rogerson of Rogerson Business Services and his M&A deal team were successful in closing the sale of this IT business despite inevitable pitfalls along the way. Their success serves as a testament to their tenacity in achieving client satisfaction and looking for win-win situations.
From the start of negotiations with the buyer in early November, emotions for the buyer and seller were up and down until after three attempts, the sale was able to successfully close with no bad luck as the date was Friday, January 13, 2023.
Selling a business is no small undertaking, and any ambitious entrepreneur needs to approach it with due diligence.
A key strategy for success? Patience - waiting through the process can often yield greater rewards than rushing into an unfavorable deal. His exact words are: "patience is a virtue, don’t come across in a hurry, listen to the market and what the market wants as your business may not be fully in line with current trends and what a buyer wants, if you make the changes to your model before selling, you’ll grab higher offers."
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