Preparing your Managed Services Business for Sale Robert J. Scott Managing Partnerwww.scottandscottllp.com Scott & 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?