I am searching for tech services firms. Software dev, consulting (technical in nature), smaller managed services mixed with project work etc. I'm not talking about software product companies, or extremely high recurring revenue firms.
I have been informed by 2 separate brokers that SBA will not work with a deal like I've inquired about so they will not send me the CIM after the NDA. My background is in tech services ~25 years, and I would be structuring deals with 10%-12% of my equity. (The two brokers didn't even get that far to find out.) Once they found out SBA was involved the conversation was over. In my conversations with (1 bank, 1 loan broker) I've disclosed the type of firm I'm searching for and haven't heard specific concerns raised other than the typical vendor / customer concentration, DSR, my financial status, etc.
Questions:
#1 What is the SBA's view on tech services, consulting, non-product software development?
#2 I'm about to launch an outbound campaign to find off-market tech services firms so if I need to change strategies because SBA really will not work these deals I'd rather find out before I spend the money and time to find off market deals. Are there certain types of tech services firms that SBA does avoid?
#3 Does this merely sound like a couple of brokers playing defense on bad deals, knowing SBA does review things closely?
Am I wasting my time searching for tech services?
by a searcher from Northwestern University - Kellogg School of Management
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Here are my learnings after spending a year trying to buy a tech service business:
1. Most SMB tech service business (under $3M EBITDA) have customer concentration. Even the small PE firms pass on customer concentration deals. So, a cash buyer is not realistic.
2. One can literally spin up a tech service business next door so there isn't really a strategic buyer scenario at play here unless they offer verticalized industry centric services.
3. Tech service businesses do not come with long-term contracts and are highly subject to market conditions. Even the Big4 are struggling to meet numbers in 2024
Taking all of this in consideration, a truly SMB size (<$3M EBITDA) seller/broker must be living under a rock to turn away SBA funded buyers. For all you know, their business might no longer be sellable in 2025
I've seen tech service businesses experience 50% dip in revenue, listings taken off of market because of how brutal 2024 is, and even some sellers winding things down and focusing on alternate career paths.