On Growth

7 Signs that a Partner Is M&A-Ready

The best candidates for mergers or acquisitions have well-documented and purposeful M&A strategies that result in at least one of these characteristics.

• By Reed Warren
• November 20, 2017

Everywhere you look in the Microsoft channel, there's consolidation happening. Given that those who combine their companies can often take advantage of 50 percent revenue growth potential, it makes sense to determine if you're ready to either buy another Microsoft partner company, or sell your own.

The best candidates for mergers or acquisitions have well-documented and purposeful M&A strategies. For those just getting started in thinking about it, here are seven signs that we often see among Microsoft partner companies who are ready and best-prepared to make an M&A move:

1. Double-digit growth.
Your professional services business needs to set goals to achieve double-digit annual growth. You'll want the revenue growth to impact both gross revenue and profit.

2. Healthy balance sheet.
A healthy balance sheet with strong earnings and minimal debt will make your firm more desirable to potential buyers.

3. A clearly differentiated (and defined) service/solution.
You want to have a service that's offered to a specific audience with a clear value statement and that's positioned as No. 1 or No. 2 in your industry or market. To craft this, we'd suggest going through a specialization and productization process.

4. Recurring revenue equaling 30 percent or greater of total revenue.
In order to make a potential buyer salivate with interest, you'll need to show that your annual recurring revenue makes up nearly one-third of total revenue.

5. New revenue streams.
One of the things that will undoubtedly help you create a conversation of interest is developing a new stream of revenue. That might look like a new line of service you offer your clients, a breakthrough Software-as-a-Service (SaaS) offering or a new office that expands your geographic reach. Whatever it is, we'd suggest developing a strategic plan to build those new revenue streams, on an annual basis.

6. Ability to assimilate.
In order to enter into an M&A transaction, you need to be ready to merge your firm with another. On top of that, you need to have a plan for correctly implementing the merger of core values, culture, people and attitudes. You have to be ready to work through the post-acquisition tasks in order to be satisfied with the entire process.

7. A personal plan.
You need to have a clear plan for yourself. Are you selling into a new business and staying or are you planning to exit? How will your roles and responsibilities change if you're buying a new partner firm? Understand and document your own plan for the next five years, post-deal, in order to ensure success.

Most professional services firms are more ready than they know, but there are details you can't overlook when entering into the world of M&A.

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