The COVID-19 crisis and subsequent stay-at-home orders across the globe transformed the way companies do business. With the sudden shift to remote work, demand for cloud and IT solutions dramatically increased. Digitization has taken a quantum leap in 2020 and 2021 as businesses of all sizes grapple to adjust to the new work environment.
While companies were struggling to cope with business challenges stemming from the global pandemic, managed service providers (MSPs) played a crucial role in their transformation initiatives. To stay resilient and competitive in the new business and economic environment, companies needed new strategies and technological solutions. From migrating to the cloud, to remote access tools and to enhanced cybersecurity solutions, MSPs have helped companies meet their business requirements and enabled remote workforces to operate flexibly, securely and effectively.
Changing role of MSPs
The speed at which MSPs have helped businesses respond to unprecedented changes has been remarkable. MSPs have aided companies in keeping pace with the accelerated digital economy, keeping their businesses secure and enabling remote working at scale.
As companies realize that technology is a critical component of their business, and as their reliance on technology grows, they recognize and value the services provided by MSPs even more. As a result, today, as an MSP, you are in a much better position and in more demand than ever before.
However, this may not be the case for every MSP since many companies are looking to reduce costs while increasing reliability. Hence, they are looking to partner with larger, more seasoned MSPs that offer a wide portfolio of services and have the right tech stack in place to adapt to new business realities.
Smaller MSPs may have certain limitations as compared to established MSPs. They may lack the tools, manpower and specialized skills to handle complex problems, or the accessibility to new technologies that are required to support an organization’s IT strategy and improve overall operational efficiencies.
MSP mergers and acquisitions to accelerate growth
MSP mergers and acquisitions activity is rising as many MSPs are looking to speed up their strategic initiatives to grow their businesses and expand their capabilities. Kaseya’s 2021 Global MSP Benchmark Survey Report revealed that 26% of MSP respondents are looking to acquire other MSPs within the next 24 to 36 months, while 8% are investigating selling their MSPs within the same period.
Many MSP owners like you are using M&A to either increase monthly recurring revenue (MRR), expand service offerings, increase market share and value, expand to new geographic territories, stand out from their competition, exit the MSP market, or gain access to new resources such as financial investment to purchase new toolsets or acquire skilled professionals.
Advantages of a successful merger and acquisition
When two or more businesses unite or one business acquires another, it can provide significant benefits to businesses of all sizes. Here are some of the advantages that you can gain with mergers and acquisitions:
Business growth: Mergers and acquisitions can help double the size of your MSP and increase financial capacity, which under normal circumstances would take years or even decades through organic growth.
Access to valuable assets: Mergers and/or acquisitions give you access to an attractive portfolio of assets/tools that are often less expensive to buy than building on your own.
Access to skilled IT personnel: According to ManpowerGroup Talent Shortage Study, IT/Data positions are among the top seven hardest roles to fill globally. M&A can help in obtaining quality staff with good knowledge of your target sector.
Access to a wide range of clientele and improved market share: When you combine with another MSP, the resources can be shared between each other. For instance, leveraging your partner’s customer base or distribution channels for your own service offerings or to grow your geographical footprint.
Diversification of risk: M&A increases your revenue streams, which allows you to distribute business risk appropriately across those streams instead of relying on just one. As such, if one revenue stream falls, other streams can serve as a backup to minimize risk.
Maximizing the valuation of your MSP for M&A
Many of your peers have benefited through mergers and/or acquisitions. If you haven’t already, the time to grow your business, increase your MRR and value, and prepare your MSP for M&A is now. Whether your MSP’s goal is to expand service offerings, increase geographic footprint or increase MRR, the practice of valuing your MSP will prepare you for a number of opportunities and open the doors to new possibilities.
But before you jump into M&A activities, here are two simple questions that you should ask yourself:
- What’s my MSP business worth?
- How do I find out what my MSP is worth?
To find answers to these questions and more, we invite you to listen to the podcast Maximizing the Valuation of Your MSP for M&A.
In this episode of The Powered Services Podcast, Dan Tomaszewski and Will Bishop of Kaseya, and Rick Jordan, Founder & CEO of ReachOut Technology, discuss how MSPs like you can prepare for a successful M&A and how to maximize the valuation of your MSP for M&A.
Here’s a sneak peek into what the podcast covers:
- How does an MSP know what it’s worth? How can they conduct a valuation to find out?
- How much does an average MSP make?
- How long does it take to break $1 million in MRR?
- What metrics should MSPs track?