Mergers and acquisitions in the managed service provider market have been a hot topic now for the past several years. There's been a deal frenzy as private equity has jumped into the market. But another likely buyer of MSPs are other MSPs.
These are companies that are looking to expand their talent, their book of business, their geographic reach, their vertical markets and more. Are you one of them? And if you are, are you pursuing these opportunities for the right reasons?
ChannelE2E met up again with the experts at Cogent Growth Partners to get a feel for these kinds of deals. What are the best practices of acquisitive MSPs? How are these deals funded? What are some of the stumbling blocks along the way?
Check out our video interview with Rick Murphy, Bruce Teichman and George Sierchio for their expert advice around these important questions.
M and A Talk: Acquisitive MSPs
00:00 Greetings and introductions
01:15 MSPs have been acquiring other MSPs for the past few years. More and more companies want to be buyers. Grow more swiftly.
02:42 You can’t use acquisitions to replace organic growth. It’s a piece of the growth.
03:20 Should you be an MSP buyer? What you need to do before you pursue acquisitions.
05:20 You need to be a good suitor. Do people like you?
05:50 Opportunity first, money last
06:30 You are recruiting new talent when you do these deals.
07:45 Why do you want to do acquisitions? Talent? Geographic? Vertical market expansion?
09:00 Why do you want to buy really, besides being bigger someday.
09:30 Most of the deals we do are talent acquisitions
09:45 Buying a “book of business” is not the way to do it most of the time. Just because I can afford something doesn’t mean it’s a good idea to do it.
11:20 Average customer size alignment is really important.
12:40 But you are not going to find a perfect fit. It’s a Ven diagram
13:00 Don’t be a VAR trying to buy an MSP or an MSP trying to buy a Salesforce integrator.
13:45 But it does make sense to buy the expertise you want to bring to your client
14:30 Just because you are a good MSP doesn’t mean you can accomplish the right kind of deal. Sometimes MSPs bring their deals to us so we can help them.
15:30 People like to “cowboy” the deal to get it to the finish line
15:35 But that’s not always a good idea. The due diligence may show it’s not a good idea to complete the deal.
17:00 How many deals make it from LOI (letter of intent) to being completed. You don’t go straight to marriage, there’s an engagement period for a reason.
18:30 We have a 90 to 95 percent completion rate after LOI
20:15 What makes a good buyer, have they done it before successfully. A little experience makes a difference.
21:00 No clients are perfect at it.
21:30 Even our bigger clients don’t have M&A expertise in house.
22:10 Two entities negotiating can be tricky. Multiple cowboys.
22:30 If you do it yourself you are taking your regular people off their regular day jobs.
24:30 You need to have a strategy. Where are you getting your financing? Are there rules that come with those funds? Can you owner continue with the business?
25:50 You have to have your own financial house in order.
26:20 Know what your options are and where you can go for financing.
27:00 As a buyer you have to have your plan for how you will integrate customers, tools and tech, employees into the new company. You need to figure that out before the deal.
27:50 Pre-integration planning tool available from Cogent Growth Partners.
