When it comes to MSP mergers and acquisitions, you'll notice each deal typically involves third-party financial advisors. For instance, Generational Capital Markets Inc. advised WaveTwo on this week's sale to All Covered. But how much do M&A financial advisors cost, and can they really help you pursue and complete an M&A deal? Here's some background plus a list of 10 financial advisors that are helping MSPs with their M&A engagements.
So, what does an M&A financial advisor do? Among the potential services:
- Getting your finances in order: What documentation will you need, from how far back, and how should it be organized?
- Building Your Book: Helping to create a comprehensive positioning statement, describing why your company is unique, outlining core assets, forecasting future growth, and explaining why potential M&A is on the table.
- Soliciting Potential Buyers: If you're running an MSP, you don't have time to scour the market for potential buyers. Plus, many potential buyers may not be on your radar at all. A financial advisor can make the right contacts, get your business in front of the right suitors, and potentially get multiple bids on the table.
- Setting Your Valuation: Just be careful here. A financial advisor can help you "set" your company valuation. But ultimately the market -- not you, not your advisor -- decides your company value. You may not like what they market says...
- Setting initial deadlines for initial conversations, coordinating initial offers, and helping to nudge suitors to deliver their best and final offer on a specific date.
- Assisting with discovery -- suitors are going to ask you and your company for piles of documentation about your business. If you did early work with your financial advisor, this stage -- though you should expect some pain along the way because this is an in-depth process.
- Weighing offers against each other -- sometimes the most money isn't the best deal. Some suitors may offer better upside over the long haul, or clearer cultural synergies. A neutral third-party can help you weigh these variables. But remember: The advisor often is paid a percentage of the sale price -- so the advisor might be biased toward your highest bidder.
- Good Cop, Bad Cop -- you can remain on friendly, cordial terms with suitors while your financial advisor makes demands or strong requests to your suitors.
- Closing day -- terms of the deal and legal documents can involve hundreds of pages. Yes, you need a great lawyer. But that financial advisor is a great set of extra eyes on the final M&A terms.
- What else -- I'm sure the list above is missing a boatload of services. If you're feeling inspired, fill in the blanks and post a comment.
Fees and ExpensesSo how much does all that advice cost? It varies but I've got an educated guess based on multiple MSP conversations. Expect to pay...
- A flat fee -- which is non-refundable -- for the retainer up front. Perhaps $5,000 to $50,000 depending on company size and workload, for three to five months of work up front to solicit initial bids/weigh potential interest. The flat fee can be paid based on mutually agreed upon milestones.
- A percentage of the sale, perhaps up to 6 percent minus the original flat fee you paid.
- Again, those are just educated guesses. Your mileage will vary widely.
10 M&A Advisors to KnowNeither I nor MSPmentor endorse the following list of companies. But I do know they are working in and around the MSP M&A market. The list is meant as a basic starting point for your research. Do your homework. Ask around for references. Now the list -- delivered alphabetically:
- 4-Profit, which consults on some larger VAR and IT solution provider deals.
- Cogent Growth Partners assists many buy-side MSPs with acquisitions and longer-term integration efforts.
- Foros, a financial services firm, advised on Presidio’s buyout of BlueWater Communications Group (a top Cisco channel partner) earlier this year.
- Generational Capital Markets, Inc., which advised WaveTwo on the sale to All Covered.
- Law Office of Bradley Gross (he’s set to speak at IT Nation this November).
- Leon, Mayer & Co, which advised Compuquip's MSP business sale to All Covered.
- Martin Wolf Securities has focused mainly on VAR and IT solution provider deals.
- Service Leadership Inc., led by Paul Dippell, helps MSPs to maximize their valuations — sometimes in preparation for M&A deals.
- TUC Capital, a division of The Utility Company (TUC Brands) that funds MSP buyouts. Note: This company operates a fund to finance TUC's M&A. Not really a traditional "financial advisor" since they represent TUC. Still a good name to know, however.
- Weaver & Associates is a boutique M&A advisor, led by MSPAlliance Founder Charles Weaver.
- Are there additional financial advisors helping MSPs with their M&A moves? I'm all ears. Post a comment or send an email, joe [at] NineLivesMediaInc [dot] com.
Careful of the M&A HypeAlso, a timely reminder: Only a few dozen MSPs and IT service providers are acquired each year. And many MSPs don't get "rich" from a sale or exit. There are somewhere between 80,000 to 120,000 channel partners in North America, depending on which research firm you believe. Fast math says you don't need to get caught up in the M&A hype since most folks will never be involved in a deal.
Still, for those who want to take the plunge, a good financial advisor is critical to a successful M&A deal, in my opinion.