Preparing your Managed Preparing your Managed Services Business for SaleServices Business for Sale

Robert J. ScottManaging Partner www.scottandscottllp.comScott & Scott, LLP

Factors that Influence Value

Revenue Quality

Customer Contracts

Employees

Real Estate

Intellectual Property

Risk Management

Revenue Quality

• Recurring Monthly Revenue – what percentage of your revenues are recurring vs. non-recurring?

• Concentration of Revenue – how concentrated is your revenue among one or more of your biggest accounts?

• Credit Worthiness of Clients – what is the credit strength of your client base?

• Vertical Concentration - what percentage of your revenue is derived from desirable verticals such as health care or financial services?

Customer Contracts

• Assignment – are your contracts freely assignable when you sell or do you have to get permission from the client?

• Term – what is the typical term of your contracts and how much RMR will buyer receive based on existing contracts after closing?

• Termination – can your clients terminate for convenience or only for cause?

• Renewals – how likely is it that your clients will renew their contracts with buyer after current term expires?

• Collection Risk – how likely is it that all clients will pay promptly after the close?

• Claims Risk – how likely is it that customers will assert claims against buyer after the close?

Employees

• Retention Agreements – do you have retention agreements with key employees?

• Non-Compete – do your contracts with employees contain non-compete provisions?

• Non-Solicitation – do your contracts with employees contain non-solicitation provisions?

• Flexibility – will the buyer have flexibility to make staffing changes after the close?

• Claims Risk – what is the risk of an employee claim against the company after the close?

Real Estate

• Rates – how do your rental rates compare to current market rates?

• Term – what is the remaining term on your lease?

• Assignment – is the lease freely assignable?

• Landlord – what is the quality of service provided by the landlord?

Intellectual Property

• Trademarks – do you own the marks that are used in the business?

• Copyrights – have you obtained copyright protection for your software, training, and other documentation?

• Trade Secrets – have you done an appropriate job of keeping

your secret sauce secret?

• Contracts – do your contracts with customers, employees, vendors, and partners protect your intellectual property?

Risk Management

• General Liability – do you have adequate insurance to protect against claims arising prior to the closing with a tail to cover claims asserted after closing?

• Professional Liability – do you have appropriate coverage for errors and omissions claims asserted by customers?

• Employee Practices Liability – do you have appropriate coverage for claims that may be asserted by customers after closing?

• Vendor Claims – have you taken the steps necessary to avoid claims by third-parties such as compliance with contracts and licenses?

QUESTIONS?