Mergers & Acquisitions: 3 Tips for MSPs Considering M&A
Mergers and acquisitions (M&A) have become a top growth strategy in the IT Channel. Managed service providers, or MSPs, look to M&A for a number of reasons. The decision to merge with or acquire another company can circle around a few different goals. Some of these include expansion of services offerings, geographic expansion, exiting the MSP space, or increasing monthly recurring revenue. While each of these goals is a little different, the underlying motivation is almost always financial.
We recently asked some of our MSP partners who have merged with or acquired other MSPs for their secret to success. While we found that each of their motivations and approaches to the process was different, there were some commonalities they each identified as necessary for a successful merger and/or acquisition.
For MSPs considering M&A, here are a few pieces of advice from our partners:
- Identify a clear goal. For example, if your goal is to expand service offerings, our partners recommend looking for companies that offer services complementary to your own. Identifying a complementary service is easier than you might think; simply ask your current clients. If your current client base has demand for a service you don’t currently offer, looking for a company who successfully offers that service is a good way to begin your search.
- Determining financial alignment and integrations is another important piece of the M&A puzzle. From the financial aspect, try to get the most accurate view possible of the company’s books you’re assessing. You can spend a lot of time in this phase, but it’s necessary to determine the maturity level of the company. Integrations also have a major impact on success post-merger or acquisition. For example, if you merge with an MSP who uses the same vendors, applications, PSA software, or BCDR solutions as your own MSP, this signals fewer headaches trying to integrate your two businesses. If, however, you use vastly different vendors and solutions, it may be in your best interest to walk away, as the integration work you’ll put in post-merger could be more than you bargained for.
- Cultural alignment and communication will also serve as key ingredients to M&A success. Take all of the time you need to get to know the MSP you are considering joining forces with while you’re assessing finances. That time is crucial in deciding whether it’s a worthwhile deal. As service-based businesses, people are always the focal point, and internal alignment needs to be present for your clients to reap the benefits in the long run. Constant communication throughout both of your businesses is also vital. Both parties in an M&A should be in agreement about when to communicate the deal to employees. Get on the same page in terms of messaging and be prepared to field employees’ questions and concerns the moment the news is shared.
The three pieces of advice above are just the tip of the M&A iceberg. It’s important to keep in mind that no two companies will take the same approach, but learning how others have succeeded can help you map out what will work best for your MSP. If you’re interested in learning more about MSPs who have found M&A success, read the full eBook, Mergers and Acquisitions Made MSPeasy.
Rob Rae is Vice President of Business Development, Datto.
This guest blog is part of a Channel Futures sponsorship.