With the IT services market’s projected growth of $48 billion this year, and volume of $64 billion by 2027, MSPs battle to get the lion’s share of the market. For MSPs who are always looking for ways to expand their business and generate more revenue, M&A is typically a part of their growth playbook.
Whether you’re looking for another form of growth, wanting to acquire expertise that you don’t have yet or simply want to tap other territories, here are some real-life advice from your peers and M&A experts for successful M&As:
1. Know when to start planning for M&As
It’s quite ironic but you must also plan your exit strategy when you start your business. We are all going to exit a business regardless, you’re going to get the most benefits when you sell it while your revenue is at its peak and when you have a consistent price trajectory.
Ideally, have a 5-year exit strategy in place – establish your vision, what you want to achieve and how you want to achieve it.
Have the end in mind when you start a businessRyan Spillane, CEO, 360 Consulting
2. Have a Unique Selling Proposition (USP)
No matter if you’re a generalist who’d like to acquire specialists or the other way around, you have to build a USP that would attract your potential buyers. A strong USP demonstrates that your business is a valuable investment.
What sets your MSP apart? This can be industry-specific skills, existing partnerships, unique tech solutions or pricing strategies.
3. Confirm if there’s general interest
Getting business partners is like getting marriedNick Clift, Professional EOS Implementer, Tenassia
M&As can only take place if you have a willing buyer and seller. Save yourself the trouble. When you sell or buy, always think of the cultural alignment upfront – get to know the staff and prepare questions you want to ask your potential buyers and avoid wasting time and resources in trying to sell or buy a business, which isn’t the right fit.
4. Remove your emotions when valuing your business
We understand that getting yourself detached from the business you’ve built is quite a challenge but it’s critical to remove your emotions in valuing your MSP and take a more objective and realistic approach. Try to set aside any emotional attachment and assess your value based on your financials, operations and growth potential.
Removing yourself out of the picture will help you get an unbiased perspective of your business’ value.
You can (we think you should) consider hiring third-party appraisers who can provide a fair view of your business. They can do the groundwork for you including looking for potential buyers and assessing your MSP based on standard metrics such as EBITDA, net profit and revenue growth.
5. Know your funding options
M&As involve a significant capital investment so you have to identify your funding sources before pursuing it.
You can try the following options:
- Negotiate a loan agreement with a seller that’s willing to finance the acquisition, this is called Vendor Finance
- Utilise the cash flows of the existing business so you don’t need to take on additional debt
- Raise bank equity and work with a bank or other financial institution to fund the acquisition. This is an ideal option if you have a good credit history and financial position.
If you’d like to hear more about what makes a successful M&A from industry experts, Ryan Spillane of 360 Consulting, Nick Clift from Tenassia, and Scott Atkinson from TribeTech, watch our webinar on demand, Navigating mergers and acquisitions in the MSP Space
Looking for other ways to boost your MSP’s growth potential beyond mergers and acquisitions? Our whitepaper, MSP Scalability Playbook, offers a comprehensive guide on other areas of your business that you can work on to achieve scalability and accelerate your growth.