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Your M&A Transaction Does NOT Have to Resemble a Crime Scene: Page 2 of 2

With a proper plan in place, the benefits of a successful M&A can far outweigh the pitfalls. By Reed Warren

When you engage in M&A to dominate your marketplace, the idea is to combine two firms that would result in a much larger one. Through this proven process, you should be able to go to market quicker, sell new and improved service offerings, and have more resources for growth and investments. Becoming more competitive in your marketplace is about strengthening your positions in geographic markets as well as exploring new ones, with new products and technology solutions.

Scale with synergies. Companies that merge can take advantage of synergies that give them freedom to grow through the scalability of similar offerings, while streamlining through the consolidation (and elimination) of duplicate resources. This process adds dollars that go directly to the bottom line, which boosts profitability, making the M&A transaction a lucrative one.

Gain tax advantages. IT services firms can use M&A for tax reasons. For instance, the U.S. has traditionally had the highest corporate tax rate in the world. Because of this, some of the best-known American companies have resorted to corporate inversions where they take a company in a high-corporate-tax-rate municipality and merge with another corporation in a low-corporate-tax-rate region.

Other possible tax advantages are a tax loss carry-forward, which involves a previously sustained net loss that can be offset against the profits of the firm it has merged with. This provides a benefit to the newly merged entity, but it's only valuable if the financial forecasting for the acquiring firm indicates that there will be operating gains in the future.

While M&A can be daunting, these and other benefits are reasons to explore the possibilities. The best way to start is with a valuation, which arms you with the best data so you can grow through buying, selling, or merging.

REED WARREN is CEO, Certified Valuation Analyst (CVA), and Value Builder Advisor at iT Valuations. During his 30+ years working in the IT Services and technology industry, he’s provided business strategy, consulting and M&A services (60+ successful transactions) to over 250 companies across 19 different countries. 

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