IT Company Owner Finds Perfect Financial Partner, Nets $50 Million Payout

The IT industry is challenging. Products can become obsolete almost overnight and industry consolidation is rampant. While unprepared companies are quickly overtaken by their more successful competitors, well-managed firms with a good revenue mix can be very profitable—if they take advantage of the right opportunities at the right time.

The owner of SMF Systems Corporation was a brilliant individual with a unique management style. Like many middle market business owners, he wanted to take advantage of a growing market. At first he considered selling SMF, but then decided to keep a portion because he felt his company had tremendous potential. All he needed was the right financial partner.

Although we knew that finding a partner with the right chemistry was imperative, we also knew that we could help SMF become much more attractive financially. We worked with management to develop and execute a two to three-year plan that would:

• Build a strong management team.
• Change the revenue mix so that services became a larger part of revenues and gross profit. (At the time, products had 6% to 10% margins and services had 35% to 45% margins.)
• Secure as many long-term government contracts as possible.
• Expand beyond government contracts into the commercial sector.

Over the next few years, the company's EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) went from $2 million to $7.5 million and margins went from 15% to 30%. Sales went from $30 million to over $50 million.

Once SMF had achieved its goals, it took us only six months to find the perfect financial partner. We guided the company through such an efficient due diligence process that when the new financial partner came on board, he had incredible confidence in both SMF and the management team. The new partner asked the president to continue running the business exactly the way he saw fit.

In this case, our in-depth understanding of the business and ownership allowed us to accomplish almost all goals set forth in the desired timeframe. It also gave us the tools necessary to pick the perfect buyer that not only paid top dollar, but had the right chemistry to work with management going forward.