Expand with certifications, vendors, and relationships / Buy Side
Challenge: A Southeast-based Regional Systems Integrator and Value-added Reseller had approximately $20 million in sales with earnings before interest and tax of $900k. It had one primary location with approximately 40 employees.
It had limited access to capital to grow the business and a platform that was not scalable to facilitate growth by acquisition. There was a lack of incentives to attract, train, and retain employees. The company wanted to expand its relationship with a major networking vendor, achieve higher authorization and technical certification levels, and continue its geographic expansion. It also wanted to improve its mix of professional services revenue to total sales, and retain and expand its customer relationships and contracts.
Solution: We developed a proposal that consisted of cash at closing, seller financing (promissory note), and a earn-out for exceeding agreed upon thresholds over a three-year period, providing some upfront liquidity for the shareholder.
The buyer also implemented a Center of Expertise “COE” model in which the seller was compensated through the earn-out structure for all revenues coming from the network vendor for leveraging its sales and technical resources throughout the combined organization.
Results for seller: The deal allowed for a liquid event for shareholders. The seller achieved nearly 100% retention for key employees and customers. The seller was able to leverage the combined buying power with original equipment manufacturers, resulting in better pricing. Both the buyer and seller were able to provide existing customers with better service by utilizing a scalable platform for additional growth and synergies.
The seller maximized its earn-out by leveraging its sales and technical resources across the buyer’s existing customers, and through improved buying power, better systems and tools, and a scalable platform.
Results for buyer: The buyer’s relationship with a major networking vendor expanded from less than $20 million in annual revenues to nearly $100 million in three years. It was a highly accretive deal for earnings, as the seller’s revenues more than doubled and profitability tripled during the same three-year period. The buyer was recognized as “Partner of the Year” and achieved the highest authorizations with the networking vendor.