Was your IT services company acquired?
Since 2019 there has been a significant rise in mergers and acquisitions of Chicago based managed service providers and IT firms. XL.net gets a lot of questions, as in daily, about either acquiring or being acquired. We will not be acquired and have no interest in acquiring others. From what we have seen, the only one that wins in that transaction is the owner(s) selling, but to each their own. Of course, you are nervous as the customer of an acquired IT firm, but more on that later, first let’s start with the list of the latest Chicago area acquisitions and acquirers (for national acquisition news, you can go here):
Managed Services Providers Acquired
- CIO Landing acquires BSSi2 – Aug 1st, 2023
- HKW Acquires CMIT Solutions – Jan 9th, 2023
- Ntiva Acquires MXOtech – Sept 30th, 2022
- PCS International Acquires Marcor Technologies – Aug 12th, 2022
- CTI Technology Acquires MacHero – Apr 26th, 2022
- Ascend Technologies Acquires Peters & Associates – Apr 5th, 2022
- Ascend Technologies Acquires Stratosphere Networks – Dec 2nd, 2021
- RIA in a Box Acquires ITEGRIA – May 5th, 2021
- Ascend Technologies Acquires Switchfast Technologies – May 4th, 2021
- HBR Consulting Acquires Keno Kozie – Mar 2nd, 2021
- Ntiva Acquires Forget Computers – Dec 21st, 2020
- Switchfast Technologies Acquires Axcell Technologies – Oct 28th, 2020
- CompassMSP Acquires MotherG – Oct 21st, 2020
- Cerberus Sentinel Acquires Technologyville – Aug, 2020
- Ntiva Acquires Equilibrium IT Solutions – Jan 30th, 2020
- Ascend Technologies Acquires West Monroe Partners’ Managed Services Division – Dec 19th, 2019
- Ntiva Acquires 3Points – Oct 2nd, 2019
- Ntiva Acquires HigherGround Managed Services – Jul 30th, 2019
- NuMSP Acquires AZBS – Apr 22nd, 2019
- BDO Acquires SWC Technology Partners – Jul 26th, 2019
- Proven IT Acquires Resolve Technology Group – Jul 5th, 2018
- Sharp Acquires ZLan Partners – Mar 22th, 2018
Globally there was 530+ acquisitions in 2020, 830+ in 2021, and over 1000+ in 2022.
Was your IT Company acquired and you want to talk?
Why do IT support companies get acquired?
Money, no surprise there. The seller will get 5 times to 15 times their EBITDA (earnings before interest, tax depreciation and amortization). There are a lot of factors to know exactly how much, but the rough math is as follows.
- If their EBITDA was under $1 million a year, they will get around 5 times EBITDA. For example, if they made $500,000 a year, they can expect about 5*$500,000 = $2.5 million.
- If their EBITDA was between $1 million and $10 million, they will get around 8 times EBITDA.
- If their EBITDA is above $10 million they will get 15 times EBITDA.
A nice windfall for the seller.
But why do the acquirers buy IT support companies?
Three times more money, when they sell. If they are able to purchase a couple of companies and pay 5 times EBITDA, combine them together to get above $10 million in EBITDA, they can sell for 15 times EBITDA and triple their investment.
- For example, let’s say an investor buys 10 companies each with around $1 million EBITDA for 10 companies*5 *$1 million = $50 million, they can then sell it for 15 times EBITDA or $150 million. A $100 million profit with very rough math and not accounting for the dark side of acquisitions.
Who losses then IT support companies get acquired?
Everyone but the seller typically. It is not unusual to see more than half of the employees and customers leave after the acquisition. The first to go are the employees who either did not want to be part of a larger organization, or because of the changes that are negatively impacting them. The resignations tend to happen in waves.
After each wave of resignations, there is frequently an impact to the service provided to the clients, causing clients to terminate. This cycle continues and is typically met by the acquirer investing heavily in recruitment to replace the lost employees, and sales and marketing to replace the lost clients.