What should I ask about a managed IT provider's largest clients' contract renewals?
Ask for a list of the largest clients with each contract’s renewal date, notice terms and who at the client decides. Then ask which of them have raised concerns, asked for a better price or talked to other providers. Renewal dates just after closing deserve the closest look.
Request the signed agreements for the biggest clients, and a schedule that puts every renewal date on one page. Check whether each contract renews automatically or needs a new decision. Look at how much notice the client must give to leave, and whether there are clauses about changing ownership of the provider. Your lawyer should read those.
Next, find out what the relationship is like. Ask who the contact is at each client, who actually signs, and how long the provider has served them. Ask about complaints, outages, or disputes, and about any price changes in the past. A client that has never seen a price rise may react badly to the first one.
Plan to meet the key clients before closing, with the seller’s agreement. Ask the seller how each would respond to the news of a sale. Ask which clients are tied to a particular technician, a closely held friendship or a former employer. Finally, ask what share of revenue the top clients make up, and whether any contract is under review. Ask also whether the seller has ever lost a large client and what the cause was. The answer shows how the firm handles pressure and gives you a realistic picture of what could go wrong after closing.
Key takeaways
- Get every large contract and one schedule of renewal dates.
- Ask whether any client has complained or asked about other providers.
- Plan to meet key clients before closing, with the seller’s permission.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
- 03Business Development Bank of CanadaGovernmentWhat are financial statements?
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