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Business Succession or Growth? Both Are Possible for IT Service Providers, Even in Uncertain Times!
The megatrend of digitalization has led to strong growth rates for most IT service providers, despite the high levels of uncertainty in recent years. This shows that this industry is resilient in times of crisis. Furthermore, the industry exhibits high growth potential, particularly in the area of IT security, as many German companies still greatly underestimate the risk of attacks on their digital infrastructure. All these factors make IT service providers attractive to investors. At the same time, companies in the industry are using acquisitions to expand their geographic reach, broaden their range of services, and recruit talent.
Many entrepreneurs in the IT services sector have successfully run their companies for several decades and now wish to take on new challenges, scale back their involvement, or further expand their businesses with the help of a strong strategic partner. Regardless of the chosen path, the necessary steps should be initiated early on.
Even—and especially—during the COVID-19 crisis, SMEs were able to consistently generate higher revenues thanks to increased pressure to digitize. This provides a strong foundation for a potential sale, as it demonstrates future growth potential.
Despite economic and geopolitical uncertainties, transactions in the IT sector remain steady. In the German market in particular, demand for established IT service providers is high, whether from large corporations or financial investors—including those from abroad. The high demand from prospective buyers puts entrepreneurs looking to sell their companies in the favorable position of being able to engage with multiple interested parties and find the right partner for their future.
Since this usually involves selling one’s life’s work, selecting the right buyer is particularly important. After all, it’s not just a matter of aligning the respective purchase price expectations, but also of ensuring that the company and its employees are handed over to a trustworthy partner.
Especially in challenging times, so-called “buy-and-build” strategies are of particular interest to investors. In a “buy and build” strategy, a large, established company serves as a so-called platform company. In addition to the large company, smaller companies are acquired as add-ons. By merging the various companies, synergies can be leveraged and the market position can be significantly improved, which in turn leads to a substantial increase in value. The rise of “buy-and-build” strategies is particularly beneficial for small companies, as it makes them attractive to financial investors even though their size would otherwise cause them to fall through the cracks.
The value of IT companies is influenced by a number of factors, including process standardization, strong management, market position, technological innovations, and the potential for future earnings. The multiples used to value such companies have held up well due to strong demand in the industry, despite the more challenging economic environment. The better a company is positioned, the higher the multiple.
Anyone looking to sell their company in the coming years should therefore familiarize themselves with the process early on so they can enter it well-prepared.
