Are mergers and acquisitions (M&A) right for you? In our experience, we’ve found that many entrepreneurs haven’t fully considered how M&A can create value for their company and investors, as well as wealth for themselves and employees.

While owners often think about a future exit strategy, frequently there’s a huge gap in creating a strategic plan on how to get there. Our own experience with our prior firm, Saber Software, demonstrates how both sell side and buy side M&A, as well as working with financial and strategic buyers, accelerated the company’s revenues from $14MM to $120MM and valuation from $35MM to $460MM. This story shows how we did it. Hopefully you can draw a parallel between our journey and your own situation.

In 1997, the two of us started Saber Software in the basement of our suburban Chicago home with only $1,000 start-up money. Our mission was to become America’s preeminent provider of government-to-citizen software and IT solutions. Within 10 years, we were the leader in delivering solutions to multiple government sectors including elections, motor vehicles, unemployment, and health & human services.

So how did we do it in just 10 years?

In 1997, Saber’s revenues were $200k. By 1999, we reached $6.5MM. After a dip due to the 2000 recession, we grew to $14MM by 2004. As we grew, our rapid growth and solid reputation attracted many suitors. A couple of times we seriously considered selling the company. Since we were getting so much interest from buyers, we established a relationship with an investment banker in 1999, just two years after founding Saber. This relationship proved extremely valuable, as we were able to run all M&A discussions through him, while remaining focused on running our business. Our banker constantly kept us informed about M&A trends, different exit strategies, and provided thoughts on what created and what destroyed value as we continued to grow the company.

In 2005, our revenues headed towards $24MM. We were still having a great time running the company but all the value we had created was tied up in the company, so we looked to diversify our financial risk. Since we wanted to continue running Saber, our banker suggested that we talk to a few private equity firms about selling a stake in the company. We fell in love with Accel-KKR (AKKR), and in December 2005, consummated a recap transaction for just over 50 percent of the company at a $35MM valuation. A recap transaction is where money is taken out by the owners, rather than going into the company.

Now that we had both peace of mind and the financial and strategic resources of a private equity firm, we were able not only to go after larger government projects, we also could contemplate growth through acquisition. Just three months after the AKKR investment, we acquired the government division of Covansys for $35MM. AKKR put in additional capital, called growth capital. We contributed capital ourselves, and AKKR lent us additional funds so that we could maintain our ownership position.

While the Covansys division we acquired was financially distressed, it had great products and people. Combined with our reputation and methodology, we saw a recipe for a success. In the first year, our combined revenues reached $59MM, and nearly doubled the following year to $120MM. With this kind of growth under our belts, powered by an acquisition, we set out to attract a buyer.

We were ultimately successful in attracting an offer valued at $460MM from EDS (now HP) and completed the sale on December 1, 2007. In just two years we went from a standalone firm to taking on private equity money to an acquisition and sale. All of actions we took along the way increased our valuation from $35MM to $460MM.
This kind of value creation would not have been possible without an M&A strategy. In a short amount of time, the Saber sale created over a dozen millionaire employees and over two-dozen half millionaires. We are most proud of this metric than any other.

Interestingly, soon after Covansys sold its government division, it sold the rest of the company to CSC for $1.3BB, thus creating immense value for the company’s stakeholders through the divestiture (another M&A tactic) of a money-losing division.

This story and its results inspired us to want to do the same for other entrepreneurs, which is why we founded MergerTech. It is now our mission to help you understand all the different facets of M&A and how they may help YOU convert YOUR work into wealth. By dropping us a line at nitin@mergertech.com you, too, can begin a relationship with us today, just as we did with our banker years before an actual transaction event took place.

Wishing you continued success in your endeavors.

Sincerely,

Nitin Khanna
CEO

Karan Khanna
President