Profitable, Secure Revenue - Respected North-east It Services Company | | Durham County Durham | | Visible and secure revenue streams from annually recurring contracts. Long-standing client relationships promote stability and provide excellent opportunities for growth. Good mix of services and approach to clients.2007 EBITDA + SDE £127k on 405k sales Freehold to buy Profitable, Secure Revenue - Respected North-east It Services Company is located in County Durham. | | BUSINESS FOR SALE ADVERT DETAILS ADVERT NUMBER : 18085
ADVERT IMPRESSIONS : 12,355 TIME(S) | | | | BUSINESS SECTOR: | Services | | TRADE TYPE: | Other | | SALE: | Private Sale | FREEHOLD: | £300000 | | | | | | | | | | Add this business advert to your: | | | | | | | | | | | | | | | BUSINESS DETAILS: | The company, based in County Durham, is a stable and healthily profitable business providing IT services to small and medium-sized organisations in the North-East of England. The dedication of the team in achieving customer care over 23 years has resulted in the company being regarded as a market leader in the local area with an enviable reputation for professionalism and integrity. A wide range of in-house expertise allows the firm to act as a ‘one-stop shop’ for its clients’ complete IT and telecommunications requirements. COMPANY HIGHLIGHTS
Demonstrates visible and secure revenue streams from annually recurring contracts
Long-standing client relationships exist which promote stability and provide opportunities for growth
Good mix of services and approach to clients makes operation relatively immune from IT spending fluctuations
Cash generating business with minimal CapEx requirement, achievable ROCE >100% MARKET HIGHLIGHTS
Customer base of SMEs relatively unaffected by financial conditions, IT provisions still forecast to grow at 5%
Strong opportunities to scale the business from a geographical perspective
Commoditisation of IT hardware provides increased opportunities for service provision to existing and new clients
Ever-increasing expectations of IT performance continue to drive needs for support and consultancy services
2007 Sales £ 405k, Gross profit £ 267k
2007 Earnings Before Interest, Tax, Depreciation & Amortisation + Sellers’ Discretionary Earnings £ 127k
EXECUTIVE SUMMARY
Introduction and Business overview
The company is a stable and healthily profitable business providing IT services to small and medium-sized organisations in the North-East of England. After nearly 25 years of running this operation the MD is considering disposal of the company to allow him to pursue the other non-competing interests to which he has devoted much of the past 2 years. Most of its customers are small and medium-sized organisations within 15 miles of Durham city. There are long-standing relationships in place with many clients which have been fostered over time by providing a highly responsive, efficient and predictable level of service and support. The ongoing services now routinely offered, which generate continuous income streams, include:
On-site hardware maintenance and software support
ADSL Broadband services
Internet Domain registration and website / email hosting
Anti-Virus software licensing and support
Remote data backup (and restore) facilities
Telephone line rental and call charges (via a third party organisation)
Other substantial and profitable income comes from sales of hardware and software at an unusually healthy margin for the sector (in excess of 38%), and from ‘one-off’ consultancy and on-site support operations. Despite a very low advertising spend, the firm continues to acquire new clients, predominantly through recommendation and referral. The company differentiates itself from its few local competitors by offering a highly solid set of services combined with a friendly and approachable attitude to problem-solving. It offers its customers particular benefits through:
An extensive accumulated base of IT and communications expertise
A corporate determination to find the best and most economically valid solution for every project
Skilled management of customer expectations
A flexible approach not restrained by adherence to particular manufacturers’ hardware or software offerings
A wide network of contacts to provide skilful assistance with specialised tasks and applications of technology
The firm operates from a purpose-designed building on an industrial park 3 miles outside Durham city.99% of the shares are owned by the MD and his wife, who also works part-time in the business. Key considerations –the IT sector
The IT sector has always been well insulated from general economic conditions due to the ‘push’ of technology and ever-increasing user expectations. In the SME market this is particularly apparent, as individual investment decisions can be relatively minor, but produce considerable savings in efficiency. For IT service organisations, the impact of clients’ delaying the inevitable investment in new IT can have a silver lining where old systems have to have their lives extended with consequent opportunities for chargeable work associated with this process. Key considerations –the company
The company is small and flexible and responds to changes in technology with an appropriate mix of enthusiasm and caution. A long corporate experience allows it to provide sound advice to clients, helping them towards sensible decisions and retaining them for the future. Long-standing relationships with many clients have led to gradually expanding opportunities for profit on a basis of trust and dependence. In most cases, the firm is viewed as the ‘Virtual IT Department’ in the client company, and many clients are completely happy to delegate routine yet profitable IT spending decisions in this way. The firm has never had an on-site maintenance contract cancelled by a customer before its renewal date, and more than one customer has returned to using the firm’s services after a brief attempt to save money by moving to another inferior supplier. Key considerations –current financial position
There is considerable scope for the purchaser to take advantage of the high level of Sellers’ Discretionary Earnings to date. In the last financial year, from a sales turnover of £ 405k these were an impressive £ 138k. Aside from the obvious contributions in the accounts from the MD’s salary and his wife’s salary, there are perhaps less obvious but substantial contributions from pensions, travelling expenses, motor expenses, and several other items which can be restated in this way in common with any owner-managed small business. The purchaser will not need to invest over-heavily in staff to replace the MD and his wife. The MD presently works less than 1½ hours per day on matters directly concerning the day-to-day running and administration of the business; his wife works on average less than ½ hour per day as Financial Controller. The Office Manager now handles almost all the administrative tasks and could without strain expand her role to include the book-keeping which occupies the Financial Controller’s few working hours. There is every opportunity to absorb this profitable enterprise into a similar operation with little or no requirement for extra management – the existing administrative systems are straightforward and efficient. Key considerations –financial history and potential
The company shows a stable financial position with increasing earnings. Over the past 5 years the increasing commoditisation and falling prices of IT hardware and software have eroded the opportunities for profit in straightforward product sales. The efforts of the firm have therefore been geared to expanding lucrative sales of recurring services. These have compensated for the fall in ‘commodity’ sales, and by their nature demonstrate a very reliable basis for future operations. The key ‘profitability’ margin of (EBITDA + SDE) / Revenue has increased of the past 4 years from a healthy level 24% to a very encouraging 31% in 2007. The proposed transaction
Potential purchasers should assume that the company will be sold on a debt-free and cash-free basis, with small amount of stock valued at its purchase cost. THE EXISTING BUSINESS
Background and history
Started as a one-man business in 1985, the company initially provided consultancy services in electronics and communications. At the outset, this work was based on an invention by the MD in the field of data communications. The rapid development of the PC market over the following 10 years allowed the business to develop into a well-regarded assembler of computers and provider of software and support services. Over the last decade, the focus of operations has been deliberately migrated to the provision of a complete range of IT services, making the firm a ‘one-stop shop’ for the IT and telephony requirements of its clients. There have been no significant changes in ownership over this period. The present owners, with the MD now aged 55, are now inclined to dispose of the company to allow them to pursue other non-competing interests in the property, retail and hospitality sectors full-time. Customers and the evolution of contracts
The majority of the firm’s customers have always been small and medium-sized organisations within typically 15 miles of the headquarters. Somewhat larger clients have included the NE Chamber of Commerce, Flymo, Black and Decker, Durham University and various NHS sites. The smaller customers in particular remain very loyal given appropriate levels of service and attention, and it is from these that much of the firm’s income is derived. An appreciation of the value of this customer loyalty has defined the firm’s guiding principle of constant, determined and amicable support for all its clients through any conceivable IT problem. Customers regard the company as a valuable partner in defining and realising their IT objectives, as demonstrated by the fact that no client has ever prematurely cancelled a contract with the firm. Staff are regularly invited to clients’ management meetings where the client does not have adequate IT expertise to provide the necessary input for their own decision-making processes. Much of the growth and consolidation in the provision of service contracts can be attributed to the good management of customer relationships which may initially develop through relatively insignificant and (initially) one-off jobs. Like car repair garages, IT companies in general are the natural subject of suspicion from new clients. It has always been the principle of the company to deal honestly and ‘bend over backwards’ to ensure that every customer ends up feeling that they have received competent, valuable and professional service. This approach has borne fruit over time with many initially trivial jobs resulting in long-term provision of a range of continuing and highly profitable services. Staff
The MD has a primarily sales and administrative role in the firm. Over the past 2-3 years he has gradually reduced his direct involvement in the business to a low level, while developing personal property interests and a hospitality business. His wife works a few hours per week as the Financial Controller. The peak number of staff employed, including the above, was 8 in 2006. Since that point the practicability of remote support has made it possible to reduce the number to 6 (including the MD and his wife) without any degradation in service offerings or profitability. All staff have relevant qualifications and expertise, and over time have developed into a highly co-operative team, with whom the clients enjoy interacting even in the face of the most stressful IT emergencies. Clients are encouraged to regard particular members of staff as their primary contacts for both sales and service. This has worked well over the past in promoting greater responsibility and job satisfaction among the staff, and allowing the MD to reduce to an absolute minimum the need for his day-to-day presence in the firm. All employees have always been actively encouraged to develop their skill sets and qualifications where appropriate. This has included helping members of staff to obtain BTech and Degree qualifications in IT. The staff turnover is very low, with an average length of service for the current staff of 13 years. Range of expertise
The organisation makes money by selling hardware, software, and the employees’ expertise in the following areas:
In-house and on-site computer hardware repairs and maintenance
Implementation and support of cabled and wireless computer networks
Network servers and operating systems and installation
Virtual Private Networks and Remote Access solutions
Data recovery and data backup services
Internet access, email and website design and hosting services
Telephone services and telephone systems supply and maintenance
The average length of experience in IT engineering for the employees is 17 years. Products and Services
The firm still builds computers to specification from industry-standard parts; nowadays these tend to be network servers as often as workstation PCs. There are occasional ‘special purpose’ computers over the recent years – for example, a set of rack-mounted audio processing computers for a recording studio; a set of computers to be fitted in a double-decker bus for educational purposes; and a very high-spec but secure multiprocessor workstation for a Rolls-Royce defence project. The company installs structured cabling systems for data and voice communications, and designs and implements network infrastructure including data routers, virtual private network endpoints, and wireless data access schemes. The ongoing services now routinely offered, which generate continuous income streams, include:
On-site hardware maintenance and software support
ADSL Broadband service
Internet Domain registration and hosting
Anti-Virus software licensing and support
Remote data backup facilities
Telephone line rental and call charges (via a third party organisation)
There are also occasional one-off consultancy projects, for example the semi-forensic investigation of web browsing records, the integration of specialist control equipment into computer networks, and the design of web sites. Advertising
The firm has not for many years paid for any advertising other than Yell. Com web entries and small Yellow Pages entries. A well-designed web site and word of mouth are responsible for the majority of new business. KEY STRENGTHS AND OPPORTUNITIES
Reputation
The staff work at every level with their clients to understand both their clients’ requirements and the most satisfactory ways of helping them achieve their objectives through the sensible use of IT. Customer surveys have shown that clients are generally very happy with the speed and efficiency of support and 83% of new business comes from recommendations from existing customers. Many clients have been dealing continuously with the company for over 15 years. The dedication of the team in achieving customer care has resulted in the company being highly regarded in the local area for professionalism and integrity. Potential for Growth & Expansion
The owners have not wished for several years to significantly expand the customer base, preferring to keep the operation stable and predictable, while improving profitability, and reducing their direct involvement. Accordingly there is considerable potential for using the firm’s excellent reputation and track record to expand the local market for its services, by direct promotion and by making the most of its existing business contacts. Competition
There are only three comparable competing businesses within a 15 mile radius, which covers at least 12 urban centres. OPERATIONS, CORPORATE STRUCTURE AND ASSETS
Directorships and Shareholdings
The shareholdings are
MD 51 %
Financial Controller (wife of MD) 48 %
Others 1 %
There are 2 Directors, the MD and the Office Manager. Premises
The company operates from a purpose-built 3000 sq ft building in an industrial park. The building is owned by the company’s pension scheme, the members of which are the MD and Financial Controller. One third of this building is occupied by a third party paying rent to the company under a short-term licence to occupy, with no landlord and tenant relationship between the company and the licensee. The pension scheme would not seek to enforce the terms of its lease with the company if a purchaser wished to vacate the building; on the other hand, if the purchaser wished to have the use of the existing area or indeed the total building the pension scheme would agree suitable terms for this. Tax and VAT
The company pays corporation tax; returns have always been filed on time, and there are no issues outstanding with HMRC. The company pays VAT quarterly and all VAT has been paid on time. The last VAT compliance visit was in 2005 and no material issues arose. Non-Cash Assets
The non-cash assets of the company are a modest amount of stock of computer parts, the furnishings within the building, and one car (used by the Financial Controller). On disposal of the business the Financial Controller would purchase this car from the company. Non-Cash Liabilities
The company has at any given time taken payments in advance in respect of the various profitable continuing services which it provides to its customers. Intangible Assets
Customer Base
The company deals with a very wide range of clients across diverse sectors; no one client accounts for more than 4% of sales turnover. An analysis of sales over the last 7 years reveals that there are about 500 clients with whom the firm has done business worth more than £ 100 over this period. Over 80% of these clients have done repeat business. At the present time the profit derived from these customers can be analysed as:
Ongoing Contracts
The firm has annual contracts with clients for the provision of services as follows:
On-site maintenance & support
110 contracts, with an average sales value of £ 1160 pa ex VAT, total £ 128k pa
(profit from these = £ 125k pa)
ADSL broadband service
65 contracts, with an average sales value of £ 520 pa ex VAT, total £ 34k pa
(profit from these = £ 10k pa)
Internet domain hosting
50 contracts, average sales value £ 100 ex VAT, total £ 5k pa
(profit from these = £ 4k pa)
Remote Data Backup
12 contracts, average sales value £ 750 pa ex VAT, total £ 8k pa
(profit from these = £ 7k pa)
Anti-Virus Protection
85 contracts, average sales value £ 190 pa ex VAT, total £ 16k pa
(profit from these = £ 7k pa)
Repeat Business - New Hardware and Software sales
£ 86k of repeat business from existing clients
(profit from this = £ 33k pa)
FINANCIAL SUMMARY– year ending 31 December 2007
Income from Sales value Gross profit
On-site maintenance contracts 125k 122k
Hardware and Software sales 192k 79k
Other contracted services 39k 23k
One-off Installations and call-outs 25k 25k
In-house repairs, reconfigurations 4k 3k
Network and phone systems 4k 2k
Consultancy, software design services 6k 6k
Remote data backup 8k 7k
Sales commissions 2k 2k
Total 405k 267k
Where the Gross Profit went
Advertising 3k
Employees’ salaries including employer’s NI 91k
Premises rent (less rent received) 13k
Rates, utilities, buildings insurance 13k
Employees’ travelling expenses 10k
Telecoms, postage 4k
Accountancy & professional fees 3k
Premises expenses, renewals, refreshments, supplies 4k
Commercial insurance 3k
______________________________________________________ Total so far £ 144k
Balance available to Sellers = £ 123k
Sellers’ salaries including employer’s NI 62k
Sellers’ dividends and pension contributions 23k
Sellers’ motor expenses 4k
Sellers’ travelling & entertainment expenses 7k
Other Sellers’ Discretionary Expenditure 10k
Retained profit 17k
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123k | | | | | | EXPIRED - AWAITING DELETION | | | | | REFERENCE: | 18085 / RightBiz | | | | | | Request more information about this business.. | | ENQUIRIES: | | | | CONTACT SELLER TO GET THE SELLERS DIRECT CONTACT DETAILS AVAILABLE TO MEMBERS ONLY | | | | | | | | | | | |
