If you have decided that 2025 is the year to make a strategic acquisition, then you may be keen to make a purchase within a sector that is not only flourishing but which can also provide your company with substantial benefits.
One such sector is the IT and cybersecurity market, which continues to grow apace in the UK and further afield.
This multi-faceted sector provides a wealth of tools, solutions and services, ranging from network management, cloud services and server maintenance to advanced threat intelligence, endpoint protection, data security, and vulnerability assessments.
Then, of course, there is the growing prevalence of AI and machine learning technologies, which are revolutionising so many aspects of both our corporate and personal lives.
Acquirers are increasingly eager to adopt these highly sophisticated tools and services, not only to enhance their own operations but to take advantage of the opportunities for increased growth and profitability that they can provide.
If you would like to join their ranks and tap into this burgeoning sector to boost your M&A strategy, then this guide is for you!
In the following paragraphs we’ll be exploring the pros and cons of investing in an IT or cybersecurity business, unveiling special considerations you should bear in mind, and detailing the M&A process.
Let’s get started!
The pros and cons of buying an IT business
It’s important to familiarise yourself with the potential advantages and disadvantages that may come with the purchase of an IT/cybersecurity company so you can make informed choices before you kickstart your acquisition journey.
The advantages
There are several significant benefits you can experience when you invest in this kind of business:
- The prospect for a high ROI
With technology occupying such a central position in our daily business operations – and with the risk of cybersecurity threats rising each year – the demand for IT and cybersecurity services is only set to grow. What’s more, businesses of every size and sector are keen to acquire specialist expertise, whether it’s a money-saving cloud solution or sophisticated endpoint protection. As a result, if you acquire a company that occupies this sphere, you are ideally placing yourself to experience a significant ROI in the years to come.
- Strong growth potential
Another substantial advantage of acquiring this kind of business is the capacity it will give your own company to scale up and expand more effectively. Drawing on your freshly acquired talent and solutions, your business will be able to optimise, streamline and enhance its operations in a variety of ways, all while cutting costs into the bargain.
- Enhanced security and efficiency
Arguably the most obvious benefit of acquiring an IT business – specifically one that specialises in cybersecurity – is the heightened levels of protection you will receive as a result. Your new expert team will be able to create a robust technological bulwark that will safeguard every aspect of your operations from potential threats.
- The ability to consolidate
If you have a robust budget for acquisitions, you may find it worthwhile to purchase several small cyber businesses and consolidate them. This can be an effective means of expanding and strengthening your market foothold.
The downsides
There aren’t many negative aspects to acquiring an IT or cybersecurity company but it’s still worth considering the potential risks. These may include:
- Integration challenges
One of the biggest problems that any acquisition faces is the task of integrating two businesses successfully. Various conflicts and obstacles can arise, no matter how diplomatically you may try to orchestrate the process.
When it comes to introducing an IT/cybersecurity business into the fold, technological issues can arise from combining two different systems. This can lead to the creation of data silos and various other potential problems until your teams find a way to create a new integrated platform.
- Poor cultural fit
This problem is by no means specific to acquiring an IT business, but in fact can afflict any merger or acquisition.
Combining two different corporate cultures – particularly those with very disparate security methods and policies – can be challenging to say the least and is not an obstacle to be underestimated. It’s important to prepare well in advance and ensure everyone is on the same page as you go about the complex process of merging your cultures and policies. This will help to avoid any lapses or loopholes in your new cybersecurity set-up which would-be attackers could exploit.
- Compliance issues
This is likely to be more of an issue with cross-border acquisitions but it’s still something to keep in mind as you embark on your M&A strategy. After all, failure to keep on top of compliance during or after an acquisition could land you in legal difficulties, and that’s a circumstance you’ll surely want to avoid at all costs.
Special considerations
There are a couple of crucial considerations to keep in mind as you approach your IT/cybersecurity acquisition journey.
The first consideration is what type of business you’re most keen to purchase. The technological landscape is one that evolves seemingly at warp speed, constantly adopting new innovations to provide more sophisticated services.
As a result, there are a variety of business types for you to choose from, ranging from companies specialising in Identity and Access Management or SASE services through to businesses that focus on threat intelligence and response, network and endpoint security, or Infrastructure-as-a-Service.
With so many options to choose from, it’s a good idea to carefully consider your current and future technological goals so you can choose the most suitable targets to focus on.
Another consideration to make is the quality of the services or solutions provided by the businesses you are thinking of buying. Just because a particular company claims to offer a comprehensive and highly secure service, it doesn’t mean their offerings are of a particularly high calibre. Nor does it mean they are immune to cybersecurity risks or weaknesses.
This is where the role of cybersecurity in the due diligence process can’t be underestimated. Before you sign any legally binding contracts, it’s vital that you thoroughly investigate the operations and services provided by the company you are thinking of buying.
How to acquire an IT/cybersecurity business
Now you are well-versed in the pros, cons and specifics of acquiring this kind of business, it’s time to delve into the M&A process itself in more detail!
If you’ve never embarked on an acquisition before, never fear – we will guide you through the four main stages of the transaction, so you’ll know what to expect.
1. Finding the right target
As we’ve mentioned above, it’s important to have a specific idea in mind when it comes to acquiring a company within this sector, as there are many firms with different specialities and solutions to offer.
It can help to dedicate some time to creating a relatively detailed acquisition ‘profile’ so you can sift through potential targets and find those best suited to your company. If you are planning on hiring a business broker to manage the acquisition on your behalf, this profile will be very useful to them as they draw on their extensive network to source and verify the most feasible companies.
Once you have found a target that you feel will bring significant benefits, you will then probably wish to have a valuation carried out, if the seller has not yet done one themselves. This will help to ensure that, if you do decide to buy, you will be paying a fair price that reflects the true market value of the business.
2. Negotiating the terms
Now that you have found a target you are keen to acquire and had a valuation done, it’s time to move on to negotiations. During this stage, you will be working out the terms of your prospective agreement. Nothing will be legally binding at this point – but you will be hammering out various aspects of your proposed deal, including everything from warranties and liabilities to integration methods and even the possible timeline of the transaction.
3. Due diligence
If all goes well during the negotiation stage and both parties are still interested in pursuing a deal, the next phase of proceedings will be due diligence.
This is when the seller of the business will provide you with all the documentation and essential information related to the running of their company. As well as financial records and tax returns, this will also include licenses, contracts, insurance information and documents related to the leasing or purchase of equipment and property.
By being given the opportunity to scrutinise every aspect of the day-to-day operations of your proposed target, you can make an informed decision regarding its suitability. This is also an ideal opportunity to discover any hidden problems or liabilities the seller may not have formerly disclosed.
4. Deal completion
Once you have completed due diligence to your – and your legal team’s – satisfaction, then it should be time to prepare the final contracts and lay the groundwork for integrating your new business.
It’s important to keep the channels of communication open and transparent with the seller and with your brand-new employees to ensure as smooth a transition as possible. Blending two different businesses can be a tall order, particularly if your corporate cultures, values and policies are quite different, so be prepared for it to take some time to get everything settled.
How a business broker can help
As we’ve already mentioned, acquiring an IT or cybersecurity business has its complexities, so you may find it beneficial to hire a business broker. Drawing on their extensive expertise – not to mention their robust network of contacts – an experienced and trustworthy broker can oversee every aspect of the sale and ensure it proceeds smoothly.
Here at Harris Acquire, we have years of experience in uniting buyers and sellers and managing stress-free, streamlined business sales from start to finish.
To find out more about our services – including our Acquisition Finder pilot, which comes with a 30-day money-back guarantee! – why not give us a call on 01926 757100 or send an email to Hello@harrisacquire.com.
