MSP M&A Panel: Experiences from Buyers and Sellers

In a panel, Gary Pica, president, TruMethods, Kaseya, led a discussion with people from various sides of the fence in terms of their M&A experiences. Ken Roulston, managed director, CMI; Stephen Zetser, director of consulting, NorthStar Technology Group; and Jim Lippie, CEO, SaaS Alerts, all shared their insights.

Pica’s first question centered around what has changed over the past year or so in the M&A landscape.

“A lot has changed in the last six years overall,” said Lippie. “Within the last year, we’ve seen that there are a lot more MSPs looking to sell.”

“The pace has changed,” said Roulston. “There’s a lot more money that has come into the marketplace. People are trying to establish dominance in the marketplace, and quickly. Deals have to be done quickly because it’s so competitive out there. After the pandemic, there was an impact — pent-up demand. Now there’s an almost frantic rush.”

So have deal structures changed?

“The debt markets are changing too,” said Lippie. “A lot of M&A has been financed by private equity firms. Most of the time, people put half down, borrow half. M&A has been so frothy, and debt has been so cheap. This drives up valuations. There’s more money to go around. We will likely now see valuations cool off because of that dynamic.”

Pica also asked what kind of red flags one looks for to rule out potential targets.

You have to ask, strategically, does it make sense, technically, culturally — will it mesh?” said Roulston. “You must establish and cultivate a good relationship with the principal person on the other end of the deal, because you want a business that shares similar values. Most acquisitions tend to fail because cultures wind up not being compatible. That’s hard to realize initially, so you have to establish through that owner what the culture of the business is.”

“When NorthStar acquired us, I wanted to be part of the team, culturally,” said Zetser. “Have those conversations early. Ask, ‘Who are you? What are your values?’ The money talk came later.”