• Menu
  • Skip to right header navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

RoseBiz Inc

Watch for what happens next !!

  • How We Help
  • Why Us
  • Our Successes
  • Blog
  • Resources
  • 858 794-9401
  • How We Help
  • Why Us
  • Our Successes
  • Blog
  • Resources
  • 858 794-9401
You are here: Home / Uncategorized / How Long Does an M&A Transaction for an IT Business Really Take?
how long does an ma transaction take

How Long Does an M&A Transaction for an IT Business Really Take?

February 9, 2021 //  by Linda Rose//  Leave a Comment

Honestly, I get this question a lot!  And my answer is….. it depends on who the buyer is and how well you know them.  But my standard answer WAS 3 – 9 months. * 

Up until just a few months ago, I would have said, the quickest you can complete a transaction is 3 months (assuming the buyer and seller already know each other well and were both in the same industry).  I say this from personal experience in selling one of my own companies. More on that below.

However, this was recently put to the test as I was approached by a seller who had an interested buyer and wanted to complete the transaction in 45 days.  So, we had to receive and finalize the Letter of Intent from the interested buyer, finalize the Definitive Agreement and provide all the due-diligence items requested. Honestly, I wasn’t sure it could be done, but we did it!

YES, it was a whirl wind, but both the buyer and seller were incredibly motivated. The buyer was a competitor in another part of the country, so they understood the business (i.e., the products, the margins and the future market opportunity.) It also helped that the buyer was experienced and had a legal and due diligence team on standby.  Not to mention, the buyer had a CPA firm perform a quality of earnings audit while we were simultaneously negotiating contracts. This is not your typical deal, but I did want to share it with you, so you know if buyers and sellers are motivated, it can be done that quickly.

The chart below, lays out the 6 stages of a transaction, and you can see the number of months it typically takes to complete each stage.  I won’t go into detail here, but I do devote a chapter to this in my book Get Acquired for Millions. And it’s worth seeing the visual of how much time a typical transaction takes.  (The area highlighted in green is the actual transaction in months from start to finish.)

Transaction Timeline

how long does an ma deal take rosebinc graph
Click Image To Enlarge

The chart is a “typical” transaction where the buyer and seller don’t know each other and haven’t yet met.  But this timeline can be shortened considerably, especially if the seller, either knows your business, (i.e., a competitor) or has worked with your company in the past and knows you and your team well.

In the chart below, you can see based upon the buyer type and how well they know/understand the business, the timeline can be shortened greatly. Let me give you a few real and personal examples:

Selling to a Shareholder

The first company I personally sold was my technical staffing firm.  I sold it to my partner.  She obviously knew the business well, so we were able to get the transaction completed in only three months.  What took time here were first coming to an agreement on price – we had some industry multiples to follow, and getting the agreements written.  We actually shared the same attorney, which made writing the agreement easier as we both wanted the transaction to be as equitable as possible. We had a great relationship and so it made things easy, but had we not, then this step would have taken at least another month longer.

Selling to a Competitor

My second company, an ERP/CRM consulting firm, was acquired by a competitor, who sold the same products and services, but in a different part of the state.  They really knew my business well, and so their focus was just on making sure my client based was healthy and that my numbers were accurate.  That transaction didn’t take more than 5 months; two months of negotiations back and forth on price and terms, one month on due-diligence and a couple of months on the agreements.  Again, very little education was required as the buyer understood my business, understood the margins and understood the value of my employees. This timeline again assumes you know in advance who that buyer might be.  If you are out searching, this will add another few months, per Stage II above – Buyer Identification.

There are however, situations where you will sell to someone who is a competitor who sells a similar but different solution to yours (i.e. a competing accounting, marketing or security software.)  A little more time will be needed for the buyer to better understand the sales, the margins and the programs of the vendors you may be purchasing product from.

Selling to a Private Equity Group

My last company sale was to a Private Equity Group (PEG) and it took 9 months from start to finish.  It truly followed the Transaction Timeline mentioned above.  I knew I wanted to sell to a PEG, but didn’t know to who specifically.  It took us a good three months to find a few equity firms that were a good fit as a buyer for my company. It also took some time to “educate” the PEG on my business, where it was headed and who my major vendors were and the margins on the products I sold.  Since they didn’t understand the business, (not uncommon with PEG’s) they also took longer on the due diligence, reviewing transactions in detail to understand costs; products, infrastructure and people. They also spent a lot of time understanding the software I used for accounting, ticketing and marketing as they would be taking these applications over post-sale.   Most PEG’s have a due-diligence and legal team on standby, so when they do identify a potential seller, they are ready to move quickly. This timeline has also been consistent with other transactions I have closed for sellers who have sold to PEG’s.

Finally, there is the individual buyer or search fund investor. Some individual investors have cash reserves to make a transaction or at least enough for a down payment, but both typically have to present the potential transaction to a bank or other fund for approval.  This can take time and I find usually adds to the length of the deal. This type of investor also doesn’t invest that often, so they don’t have an entire due-diligence team on hand to immediately begin looking through your financials, contracts, etc.  They are also not as knowledgeable about your products, services and vendors, so it tends to drag out the transaction longer while they educate themselves about your business and your industry. This of course is not the case with every individual or search fund buyer, but it is more often than not.  These are not my most favorite types of investors, but they can at times come to the table with a better offer (terms and price) than others.

So, as you can see, there is no typical answer to the question of how long an M&A transaction takes, but at least now you have an idea based upon the type of buyer.  Not sure if a Strategic or PEG is a better buyer for you?  Be sure to take our Quiz – Strategic vs Financial Buyer  to determine which buyer type is most aligned with your business.

  *My explanation above assumes a transaction under $100M in revenue.  Larger deals can take longer periods of time. We are also assuming, that this transaction doesn’t include real-estate, extensive inventory or property, plant and equipment.  So, I am really answering this questions as it relates to a technology service business.

Category: UncategorizedTag: ISV, M&A, MSPs, Selling Your Business, VARs

Previous Post: «earn-outs tips linda rose rosebiz inc 5 Tips for Negotiating Earn-out Agreements
Next Post: Quality of Earnings Report – Why you will want one of these! quality of earnings report what why how much qofe»

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Getting calls from Private Equity?
 
Whether selling your company is part of your short-term plans, long-term plans or not even on your radar, getting your first call from a private equity firm is pretty exciting.

But why are they interested and what does this mean for you?

In this PDF we will share with you the WHAT, WHY and HOW to take a PE Call.
 
Download the guide on how to handle a Private Equity call


Linda Rose Get Acquired for Millions Book

Stay Connected

Fields marked with an * are required


You can change your mind at any time by clicking the unsubscribe link in the footer of any email you receive from us, or by contacting us at linda.rose@rosebizinc.com. We will treat your information with respect. For more information about our privacy practices please visit our website. By clicking below, you agree that we may process your information in accordance with these terms.

GDPR

We use MailChimp as our marketing automation platform. By clicking below to submit this form, you acknowledge that the information you provide will be transferred to MailChimp for processing in accordance with their Privacy Policy and Terms.

Recent Posts

  • Quality of Earnings Report – Why you will want one of these!
  • How Long Does an M&A Transaction for an IT Business Really Take?
  • 5 Tips for Negotiating Earn-out Agreements

Archives

  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • July 2019
  • January 2018
  • October 2017

Footer

Resources and Links

  • M&A Readiness Services
  • Advisory Board Services
  • Speaking Engagements
  • Resources
  • Assessment
  • Book: Get Acquired for Millions
  • PersonalScore

RoseBiz, Inc.

  • Why Us
  • Contact Us
  • How We Help
  • Blog
  • Media

Join Our Newsletter

Fields marked with an * are required


You can change your mind at any time by clicking the unsubscribe link in the footer of any email you receive from us, or by contacting us at linda.rose@rosebizinc.com. We will treat your information with respect. For more information about our privacy practices please visit our website. By clicking below, you agree that we may process your information in accordance with these terms.

GDPR

We use MailChimp as our marketing automation platform. By clicking below to submit this form, you acknowledge that the information you provide will be transferred to MailChimp for processing in accordance with their Privacy Policy and Terms.

Copyright © 2021 RoseBiz Inc. | Privacy Policy | Terms and Conditions

This site uses cookies to store information on your computer. Some are essential to make our site work; others help us improve the user experience. By using the site, you consent to the placement of these cookies. Read our Privacy Policy to learn more. Accept
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.

SAVE & ACCEPT