Key To A Successful Sale: Understanding Your Own Value

Two days after managed service provider CSCI signed an agreement to be acquired by storage vendor Iomega, the San Diego-based company was selected by Juniper Networks as MSP of the year.

Rich Tear, co-founder of CSCI and now vice president of managed services for Iomega's OfficeScreen division after the acquisition was finalized last month, said the moment he got the award he immediately called Iomega's CEO and Vice Chairman Jonathan Huberman and asked if there was any room for more negotiation. "He said, 'Let me look and see if the ink is dry on the contract. Yep. Sorry,' " Tear recalled.

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While many solution providers look to brokers to aid in selling their business and in setting a price, many others, none of whom disclosed the final selling prices, said that understanding their own business and how it compares to the rest of the industry is more important than bringing in outside help to determine the price.

Tear said CSCI talked to several different people inside and outside the company, including a number of CLECs (competitive local exchange carriers) looking to purchase CSCI for its managed services expertise, to help in finding the right price. CSCI also looked at the value of the separate parts of its business and what others have been paying for similar operations.

"Then we started negotiating," he said. "At one point, we got to what both sides said was reasonable and then agreed."

Tom Croce, president of Phoenix Computer Associates, which this year was sold to an investment firm, said that he and the former principals of the company looked at revenue and profitability streams and expectations in determining its value.

The biggest variable, however, is the people, Croce said. "Our primary asset is our people," he said. "We have a number of people who have been here 10 to 20 years and have a lot of experience."

In the end, Croce said his company felt there was no need to bring in outside expertise to come up with a selling price. "There are a number of standard valuations," he said. "We used them."

John Reed, formerly COO at SIS Technologies before it was acquired by San Antonio-based Sigma Solutions this year and who now heads the company's Houston, Minneapolis, and Phoenix offices, said that while SIS did consult an attorney with merger and acquisition expertise, the old way is still the easiest.

"Most companies are valued at about five times their net earnings," Reed said. "That's typical. And kind of where we were."