Why MSPs Need to Plan for M&A

…the whole deal in many ways. To help prevent employee churn and ensure a smooth transition, make sure the cultures of both companies are compatible. The role of the exiting business owner (who probably built the clientele) is often overlooked. The same holds true for the client base, which can erode quickly with culture shock.

For sellers:

• Keep your financials in order: Just as it’s recommended for buyers to audit an MSP they want to buy, sellers are advised to have clear records available to share. Potential buyers will want to know that your business is sustainable and in good financial standing. Not having those records in order may cause prospective buyers to walk away even before the due diligence phase.
• Document your processes: Buyers need to have a clear overview of each of your business functions and what role each person in the organization plays. Buyers are looking for clear signs that they can optimize profitability by combining and eliminating redundant roles. Not being able to provide this information might cause doubt as to the effectiveness (and profitability) of your business, making it less attractive for buyers.
• Keep putting in the work: Preparing your business for a sale is one thing, but maximizing the value of the transaction is something else entirely. Thanks to recurring revenue, it’s not uncommon for MSP owners to exit with a 4x to 7x multiplier. However, it rarely comes without having certain key elements in place at the time of transaction. It can also often involve an earnout that motivates the seller to stay on board for one to three years to maximize the return.

Navigating the M&A Space

With more and more announcements of MSP mergers and acquisitions coming out daily, it makes sense that many channel partners are weighing their options. It doesn’t matter if you’re not planning to sell your MSP or buy another one right now, but it does matter that you’re prepared. Having a plan sketched out before getting into the thick of things will help you find your footing if the situation ever does arise.

In the meantime, working with a strong channel partner can help you develop such a plan. Sherweb has tons of expert resources on hand to help make it happen. Reach out to us for more information about how we can help your business achieve its goals.

Michel Marleau is Head of Sales, MSP Services, Sherweb. Michel has helped channel partners grow for more than 25 years and brings a wealth of experience in the field. A passionate channel advocate, Michel engages with the Sherweb community of partners and is dedicated to helping MSPs scale and build a more profitable business, one successful partner at a time.

This guest blog is part of a Channel Futures sponsorship.