SMBs could be selling their IT departments short

A recent survey indicates that up to half of medium-sized Canadian businesses will go through an ownership change in the next 10 years, resulting in some turmoil for the IT departments that are left behind.

Consulting firm Grant Thornton spoke to 300 Canadian firms with annual revenues of $15 to $300 million. Half of the owners of those companies said they were looking for an exit strategy either through retirement or selling their business to an interested party. The global average for ownership changes over the same period is 28 per cent. Only South African (52 per cent) and New Zealand (51 per cent) businesses are changing hands at a greater rate than those here in Canada.

Part of the reason is simple demographics, said Andy Langer, a partner in the corporate finance department at Grant Thornton: more Canadians are reaching retirement age. But another pressing reason behind the decision to sell off a business is the supply of capital that’s available.

“It’s generally being seen to be a more valuable time,” said Langer, adding that there is considerable interest for large enterprises to swallow their smaller competitors.

But with a change in management comes a change in infrastructure. According to Andy Woyzbun, lead analyst, Info-Tech Research in London, Ont., acquiring firms tend to come with their own set of values and preferences, including the technology they use to conduct day to day business. That could spell doom for an existing IT department at a medium-sized enterprise.

“The result tends to be centralizing and rationalizing their IT,” said Woyzbun. “Less ERP, less order-entry, less sales systems. If a smaller company is acquired by a larger company for whatever reason, the IT (department’s) days are numbered.”

As a result, it can be harder for small or medium-sized businesses to attract IT talent in the first place, he said. Established IT workers may seek out a large enterprise in favour of an SMB because of the perceived stability.

But corporate interests aren’t always in conflict with those of a smaller business, according to Langer. “A lot of people have this pre-conceived notion that (acquirers) have an interest in cost reduction. That’s not always going to be true,” he said. Large companies are interested in expansion and it may be in their interest to add to IT rather than subtract.

“I’ve got a generally positive of what a change in ownership means,” he said.

SMBs may be of particular interest to two sets of IT professionals, said Woyzbun: those starting out in their career and those coming to the end. Younger workers will benefit from hands-on experience and exposure to business processes. The appeal is similar for older IT workers, who would likely have more of a say in the decision-making process.

It tends to be workers in the middle of their careers, age 30 to 50, that crave stability, said Woyzbun and may not want to take a gamble on an SMB that could be acquired on short notice.

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Jim Love, Chief Content Officer, IT World Canada

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