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Was your IT services company acquired?

Was your IT services company acquired?

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

Globally there was 530+ acquisitions in 2020, 830+ in 2021, and over 600+ in the first half of 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.

Let’s talk

XL.net has been providing IT support in Chicago since 2009, and as I stated, we will not be acquired and have no interest in acquiring others because cashing out is not why we exist.