If you think you know what your VAR business is worth in an acquisition, you probably don't, according to Frank Albi, a former VAR executive who's been through a few M&A wars in his career.
"The reality is this is what you know," said Albi, pointing to a small slice of pie in a chart during a breakout session at XChange Solution Provider Tuesday. "And this is what you don't know you don't know," he added pointing to a much larger slice of the pie.
Most solution providers don't know what they're really worth because they haven't taken the proper steps to prepare the company for a sale in the first place. Each missed step means money off the table, said Albi, CEO of Albi and Associates Consulting and former president and CEO of Core BTS and president and COO of Inacom Information Systems when that company was sold.
"It starts with a phone call. You might get one every week. Are you interested in selling your business? It sounds like a lot of money but you need to find out your readiness," Albi said.
For example, having family members on the payroll and corporate country club memberships won't help get you the price you want, he said. "Compare it to selling a car. You've got a blue Chevy and you've done some work on it and researched it and you think it's worth $20,000. You take it somewhere and they said it's worth $15,000," he said. "You haven't thought through all the things on your list to get to the number you want."
Preparations to sell a company could take years because the company's business plan must be aligned with a potential sale date, he said. He cited building a $250,000 NOC for one company that hadn't started generating revenue yet when the business owner decided to sell. The prospective buyer looked at it as a liability and Albi said it was reflected in the final sale price.
"Have you ever done a real assessment? Can you call your baby ugly and say does this equate to what I want? If I was buying my own company, how much would I pay for it?" Albi asked.
One of the biggest keys to maximizing the value of your company is increasing profits before a sale, Albi said. For every $100,000 in additional profit, you might generate another $400,000 in the sale price, he said.
An area that many VARs miss when wooing a buyer is making sure that senior leadership is aligned with the strategy of selling the company during a buyer's due diligence.
"I will interview your vice president of sales, the president and go down the list and I will find holes the size of the Holland Tunnel," Albi said. "The sales VP might say, 'This customer is not that great' or 'This one's in trouble.' It's because none of the [team] is linked to the exit. They think they will be unemployed. Your key resources can sink the ship. They have to understand where you are; involve them in the conversation and the due diligence process will go well."