Add-On Acquisitions for Established IT Services Companies
Owners of established IT services companies are sometimes approached by a nearby provider whose owner wants to retire, or see a chance to add a complementary capability, such as security services, a software practice or clients in a specialized field. An IT company add-on acquisition can bring existing clients, engineers and relationships under an experienced operator. It also brings integration work: different tools, contracts, pricing, security practices and team cultures that need careful planning.
This article is general information for owners of existing, operating technology companies who are considering buying another existing company. It does not cover opening new offices or locations from scratch. Contract, employment, privacy and intellectual property matters vary by state and situation and should be reviewed with qualified professionals. Nothing here is legal, tax or financial advice.
Why Owners Consider Add-On Acquisitions
- Adding established clients in a neighboring market
- Gaining engineers and specialists who would take time to hire
- Adding a service line with an experienced team already in place
- Spreading service desk, tools and back-office costs across a larger client base
- Reducing reliance on a few large clients
Evaluating the Target
An experienced owner understands IT services, which helps, but the target’s contracts, pricing and practices may differ from their own. The review should cover revenue and profit by client, contract terms, service profitability, staff and key relationships. Owners should look for overlap and for clients whose contracts may allow termination on a change of ownership. Our technology company due diligence checklist covers the full review.
Security and Tool Differences
The target may use different tools, security practices and credential management. Bringing its client environments under your standards can take time, and any security weaknesses become your responsibility after closing. See our article on cybersecurity due diligence.
Vendor and Partner Relationships
The target’s distributor terms, partner program status and resold licenses should not be assumed to transfer or to combine with yours. Owners should confirm what each vendor requires after a change of ownership.
Retaining the Target’s Team
The engineers who know the target’s clients are central to keeping them. Plan early for roles, compensation and how the teams will work together. See our guide to technical staff retention.
Integration Planning
- Moving clients onto shared ticketing, monitoring and billing systems
- Aligning service agreements, pricing and service levels over time
- Communicating with clients and staff
- Deciding whether to keep the target’s name for a period
- Consolidating vendor accounts and licenses where permitted
Financing an Add-On Acquisition
Lenders will evaluate both the acquiring company and the target, including combined cash flow, existing debt and the integration plan. Options may include SBA-backed loans, conventional financing and seller financing, depending on eligibility and lender review. See our guide to SBA loans for technology companies. Larger combined businesses may also consider middle market financing. Integration can strain cash, so owners should also review technology working capital and lines of credit. Existing loan agreements may have covenants or consent requirements.
Pitfalls to Avoid
- Overestimating how many of the target’s clients will stay
- Underestimating integration costs and management time
- Migrating clients to new tools before staff are ready
- Stretching working capital across both companies
US Professional Funding helps established owners finance the acquisition of additional existing, operating technology companies. Learn more about our technology acquisition financing.
