ConnectWise’s Arlin Sorensen on Business Value Creation and Acquisition in a COVID World

Business value creation happens when a business or organization uses its work and resources to create something of value that is sold to a customer base. Prior to COVID-19, the market for M&A was very active, and while the pandemic has impacted things significantly, it hasn’t stopped interest or deals that are underway.

In a recent webinar, Arlin Sorensen of ConnectWise led a discussion that dove into the current landscape of what partners are seeing in the marketplace around them regarding building business value on the sell side, and how they are looking at acquisitions on the buy side of the M&A world for MSPs.

Joined by Reed Warren, CEO and CVA at IT Valuations, Jake Spanberger, president at Entech, and Mike Williams, chief strategy officer at Logically, Sorensen talked about what has changed and how both buyers and sellers are looking at the market in today’s new reality. 

The discussion represented people active on both sides of the table and gave prescriptive guidance on what you need to do today to increase the value of your business, or how to consider the potential acquisition opportunities that will likely exist in the coming months.

According to Sorensen, there are seven ways to increase the value of one’s business. So, we dove into them a little more in-depth.

Business Value Levers

1. Financial performance

• Not just top-line revenue (growth)
• Not just EBITDA (profit)
• Biggest driver: recurring revenue 
• Businesses are paid for with available cash flow.
• Clean numbers are a big plus – addbacks vs deducts.
• Valuation calculators can help.
  • Multiple of EBITDA
  • Revenue stream values

2. Preparation

• There will be a transition.
• Prepare now.
• Due diligence should guide preparation.
• Organize, scan and store information the way buyers will want it.
• It gives confidence.

3. People

• Make yourself replaceable.
• Develop strong leadership and management.
• Consistent people investment and growth
• Well defined org chart with accountability
• Strong HR practices

4. Customer and Revenue Retention

• Long-term customers with low churn
• Assignable contracts
• Revenue growth from:
  • Current customers
  • New customer acquisitions
• Low customer revenue concentration
• Retention growth from base

5. Have an Integration Plan

• Skill sets identified
• Processes documented
• Policies defined
• Helping the acquirer get to positive ground sooner than later is a huge driver.

6. Know What You Want Post Transaction

• Continue as operator
• Continue as consultant
• Exit in 3/6/12 months
• Exit on transaction

7. Have a Post-Event Plan

• You can’t just do nothing.
• Golf every day gets boring.
• Don’t self-sabotage the sale.