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Thinking Of Buying Or Selling An MSP? Here Are 6 Tips From Experts

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By Joseph F. Kovar
November 17, 2021, 03:25 PM EST

A lot of factors are involved in determining if and when an MSP should engage in a merger or acquisition deal. And now, at a time when the MSP M&A space is red-hot, many have questions about understanding a company’s value, its cultural fit, and how different buyers including private equity firms approach the deal. Cogent Growth Partners executive vice president and senior partner, George Sierchio and a panel of M&A experts answered these questions at NexGen+ 2021. This article summarizes the key take-aways from the lively discussion.

Quick summary

Navigating mergers and acquisitions (M&A) in the managed service provider (MSP) sector requires careful consideration. With the MSP M&A space currently red-hot, understanding a company’s value, cultural fit, and how different buyers, including private equity firms, approach deals is crucial.

1. Is Now a Good Time for M&A? Experts agree that the current market is ripe for M&A activity. Investors are eager to capitalize on MSPs, particularly those that have thrived during the COVID-19 pandemic. The financial incentives for merging smaller MSPs into larger entities are significant, driving many businesses to explore acquisition opportunities.

2. Are You Ready to Make a Deal? Timing and readiness are pivotal. Every MSP has its unique motivations for pursuing M&A. Whether it’s part of an exit strategy or a growth plan, being clear about your reasons and prepared for the process can significantly impact the outcome.

3. Do You Know What Buyers Want? Understanding a buyer’s needs is essential for a successful sale. While recurring revenue and customer satisfaction are often top priorities, each buyer may have specific criteria. Being able to present your MSP in a way that aligns with these expectations can make your company more attractive to potential buyers.

4. Is There a Cultural Fit? Cultural alignment between merging companies can make or break the success of an M&A. Ensuring that both companies share similar values and working cultures helps facilitate a smooth integration and maintain employee morale post-merger.

5. What Do Private Equity Firms Look For? Private equity firms have diverse approaches to MSP acquisitions. Some focus strictly on financial metrics, while others value the operational and customer service strengths of the MSP. Knowing what a private equity firm is looking for can help tailor your approach and negotiations.

6. How Should You Communicate With Employees? Transparency with your team about potential M&A plans is crucial. Early communication helps manage expectations and can prevent fear and uncertainty. Ensuring employees understand their job security and the benefits of the merger can foster a positive transition.

For MSPs contemplating M&A, these expert insights highlight the importance of strategic preparation and clear communication. By addressing these key considerations, MSPs can navigate the complex landscape of mergers and acquisitions more effectively.