In recent years, being acquired or acquiring another business has emerged as a popular growth strategy for managed services providers (MSPs) that aren’t focused on a vertical or niche. General service MSPs have two main options: They can either acquire a company to bolster resources and better position their business, or position their business to be acquired by a strategic buyer.
While at first glance, being the acquirer might seem an expensive way to expand your services portfolio, in the long run, it’s often less costly than developing new services from scratch when you add up the expenses of creating the right service, choosing the best technology, training staff, pricing and marketing the service. And then there are the risks of delays (and additional costs) from multiple iterations and another MSP getting a foothold in that market.
A merger with a complementary partner often presents the best of both worlds, addressing the capital requirements and offering a speedier time to market than organic growth. Of course, choosing whether to go the build or buy route depends on the business and market factors an MSP faces, such as competitive landscape, capital flexibility, and internal staff experience.
Fortunately, the M&A market is hotter than ever for service providers. In the first three quarters of 2017, M&A deals among tech-enabled services increased 74 percent in value and 27 percent in volume compared to the same period in 2016, according to the JEGI Q3 2017 M&A Overview. This is in contrast to a 60 percent decline in value and a 30 percent decline in volume among software vendors.
Keys to Success
Identifying your end goal before you get started is the first step toward success. If you are looking to sell your business, determine whether you are pursuing an exit strategy or want to team up with a larger player and be part of a bigger growth story. On the flipside, if you have the resources to make a purchase, understand the perspective of the business you are acquiring to ensure you are on the same page as you make your investment.
While there are many tactical steps to take to get M&A ready, the key is to put the business first in your operations. What benefits you offer and who your customers are must always take priority over the technology itself. For many MSPs, this means a change in management. Consider a management team that consists of not just engineers who know business, but also business people who know technology.
A team of business people who know technology at the helm is more likely to be aware of the current market and have the knowledge to provide insight on what your company is actually worth now and in the future, making it much easier to gauge how your business measures up to the competition.
A business-centric team often also has the foresight to know what steps to take after the acquisition is complete, smoothing the process of deciding who should stay on, what positions should continue inside the new company, and what the earn-out process should be.
No doubt, understanding today’s M&A market and taking action to ensure your MSP is more attractive to buyers is complicated. But it doesn’t need to be overwhelming. To learn more about how mergers and acquisitions impact MSPs and discover best practices that will benefit your MSP throughout the M&A lifecycle, join us for the Kaseya M&A Symposium in Fort Lauderdale, Fla. on Feb. 8.