Municipalities as customers

July 13, 2021

by an investor from Harvard University - Harvard Business School in Paris, France

Has anyone seen any deals where a high portion of the company's revenues coming from the public sector (namely municipalities, or eventually states). If so, would be curious to understand how procurement rules impact those contracts.

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Reply by an investor
from University of Pennsylvania in Washington, DC, USA

+1 to Joe who runs a fantastic GovTech business. I'm a serial GovTech entrepreneur (3x exits, last to Motorola) & investor. Broad topic but in general I like companies that have large groups of municipalities as while they can be long sales cycles, they are sticky once you get in so high retention & generally will want to buy additional products from you as you expand your offering. If you do a good job with 1, they will tell the nearby city/counties so there is a good referral mechanism and aligned incentives. If I can be of help, feel free to send a note - DM or redacted .

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

I am an M&A Intermediary. I have had sellers who had on-going relationships with municipalities, cities, state, etc. I have also had contract related businesses. The contract related businesses can be one-time projects (building a facility or upgrading one), or contracts that are renewed. Project type businesses are risky. On-going contracts related businesses have lower risk but you are subject to pricing pressures. In all cases, I find receivables are long with such customers creating cash flow stress.

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