Computer Disaster Recovery Company Adds Outsourcing Service, Lands $100 Million Contract, Valuation Soars to $42 Million

Initially, we were hired by the Partners Resources Group (PRG) to provide audit, tax, and business process services. In getting to know the company and its shareholders, we saw the opportunity to minimize taxes, maximize value, and eliminate issues in the event they decided to sell, which we learned early on was their ultimate goal.

We worked with PRG to build an overall strategy and then assisted them with the execution of:

• Within the first year we converted the company from a "C" corporation to an "S" corporation. Utilizing advanced valuation techniques, we were able to establish company value at less than $1 million at the time of conversion which led to millions of dollars in tax savings.
• Additionally, the company offered a single service—disaster recovery. To be salable, Partners would have to expand their product/service mix. Because of the company's internal skill set we worked with the President to bring on outsourcing as a service. It wasn't long before they landed several solid accounts. As the company's reputation grew, they pitched larger contracts. Success came a year later, when PRG was awarded a $100 million, 10-year contract from Honeywell for outsourcing services.
• We then assisted with the planning and implementation of processes and procedures that would allow for timely and accurate information to support successful due diligence when the company began looking for a capital infusion.

To build the infrastructure necessary and properly execute this major contract, PRG needed an influx of $5 to $10 million of capital. During our capital search, we found a large IT services company looking to get into this business. We met with them and demonstrated the tremendous potential of the company. This interested them so much that they decided to buy the entire company instead of just a portion.

Although PRG had never been profitable in the past, we expected the new outsourcing contract to change that. Therefore, we negotiated a multiple of seven times the projected EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization).   Of the projected sales price of $36 million, one-half was given to PRG upfront. We took both parties through a successful due diligence and contract negotiations in only 60 days.

Our instincts were correct. The first year after the sale, PRG was much more profitable than expected. The valuation ended up being $42 million and our client received an additional $24 million. All parties were so pleased with the job we did for them that they continued using our tax and M&A services for years after the deal was completed.