10 ways for IT and tech companies to maximise value

Wednesday, October 19, 2011 | Posted by: Grant Thornton
Categories: Technology sector | Tags: technology, tips, success, corporate finance, Private Equity, tech, selling a business, Wendy Hart, IT, value drivers, buyers

How can IT company owners ensure they are creating businesses that will not only be attractive to buyers, but that will achieve the maximum possible valuation? It’s a question that Grant Thornton corporate finance partner and technology specialist Wendy Hart is frequently asked. And so we’ve put together 10 of the most important drivers for success and, ultimately, value creation in the IT industry.

Top 10 value drivers in IT and tech
Hart said that to maximise their exit value technology companies need to be ticking as many of the following boxes as possible:

1. Operate in a growth vertical
Ie, where IT spend increases at a higher rate than average.

2. Offer growth products or services
At the moment, this means mobile applications, predictive/prescriptive analytics or cloud services, but companies should keep a constant eye on refreshing their offerings to avoid the commoditisation of technologies.

3. Offer points of difference
Offer something unique with a focus on proprietary technology and/or brand.

4. Be financially sustainable
Resilient income streams count; an example in today’s market might be software as a service.

5. High-quality customers
Providing services or products to customers that are likely to increase spend but with customer concentration of no more than 10% of revenues.

6. Foster good relationships
By providing business-critical solutions or being embedded with customer organisations and managing those relationships at board level.

7. Profitability and able to deliver best-in-class margins
Often the first and foremost driver for private equity.

8. Balanced, high-quality management team
Having a talented SMT on board can drive value up.

9. Growth strategy in place
Be able to demonstrate future growth through a credible strategy, illustrating scalable products or services.

10. Build scale
This reduces risk and ensures the business is either large enough to attract trade buyers’ attention or become a platform investment for private equity.

However, there is a tension between these value drivers and this is just the start of the conversation on how to maximise value in IT companies.

These value drivers were put together as part of a recent Grant Thornton technology sector event moderated by our corporate finance partner Wendy Hart and featuring four expert panellists:

• Dr Alexander Simkin – Lead analyst in consulting firm Ovum’s IT services practice.
• Jo Taylor – Non-executive director, advisory board member and private equity investor with 25 years of investment experience.
• Mark Thompson – CEO of MDNX Group, a provider of managed networks services and cloud computing infrastructure.
• Paul Egan – Founding partner of private equity group Canter with nine years’ experience of investing in lower mid-market companies.

The panel went on to discuss other issues, such as, how can owners of mid-market IT businesses best position their companies for sale; how to define their strategy in a fast-changing market and against a turbulent economic environment; and what different types of buyer are looking for.

Further help
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Image of Steve Jobs iPad presentation: CC Blake Patterson

You might also find these links useful:

* Read about our technology sector deals
* Research and Development tax credits: response and further consultation
* Festival of Business: Osborne to follow Germany’s lead on mid-market