MSPs: 8 Mistakes That Can Kill A Managed Services Merger or Acquisition
Merger and acquisition (M&A) activity continues across the managed services landscape. But plenty of MSPs are still struggling to formulate their own exit strategies. And some M&A buyouts ultimately fall through. Why’s that? Here are eight “deal killers” small business owners make when they try to sell their companies.
First, some proper credit: The list of deal killers comes from Newsday, Long Island’s largest daily newspaper. The list was designed for small business owners. I’ve paraphrased the list and also tweaked it a bit for the MSP sector. So here we go…
1. Overpricing: Have you taken the time to truly assess you’re business’s value? Too often, owners focus on how much money they need to retire. Instead, have the business assessed by an independent third-party.
2. Poor Management Depth: Are you the business? If so, then your business may be worthless without you.
3. No Skin in the Game: Because of the tight lending environment, sells often have to be willing to offer some financing terms for at least a portion of the deal.
4. Losing Key Employees: Do you have a plan to help retain employees through the sale process?
5. Lack of a Transition Plan: What’s the seller’s role in the business, if any, after it is sold?
6. Real Estate Leasing Terms: If your business needs a footprint, are the leasing terms reasonable for the company buyer to take on?
7. Covering Up Problems: Be honest before the buyer uncovers your secret problems during due diligence.
8. Dragging Your Feet: Delays kill deals, Newsday says. Hire a business broker if you can’t move swiftly on your own.
Note: Sorry I don’t link to the original Newsday article, but their website has a firewall that blocks non-newspaper subscribers.
Also of note: A growing list of organizations and associations strive to help MSPs with merger and acquisition activity. Chief among them are Martin Wolf Securities and Weaver & Associates (headed by MSPAlliance President Charles Weaver).
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Again another great list to forward, Joe. When I’m doing Mamp;A work on the buy or sell side as well as prepping companies for a top dollar exit strategy these all come into play. I often see another good 10+ items that seem unimportant to most business owner(s) until they make the decision to sell. Preparing for the highest valuation possible is often thought about once the decision to sell is made. And that’s usually way too late in the game and you hope they realize selling will have to wait until things are straightened out.
I truly don’t recommend anybody attempting to prepare for or actually sell a business on their own. This is often a once in a lifetime situation and you want to do it right or you are likely to get very little out of the process except aggravation for all of your hard work. And if you have sold a business before, you should already know how time consuming and emotional the process can get trying to do it on your own regardless of the actual knowledge needed to make a good deal happen. It’s not worth the trouble going at it alone.
I always recommend a good 2 to 3 years if not more of preparation to sell starting with a valuation from an outside party and then mapping out how to squeeze out a top dollar offer. Executing that plan and tracking changes in the business value are important. Ultimately though, the market and the buyer pool (depending on the type of buyer you are shooting for) will determine what the “value” of the business is when an offer is made. But looking at your business from a buyers standpoint will always put you in the best position possible.
George Sierchio