Are you doing less than $5M of revenue as an MSP? In this latest episode of The Business of Tech, The Host Broker’s Hartland Ross joins Dave Sobel to talk about deal dynamics for MSP earning less than $5M in revenue per year.
If you enjoy this video, you might also want to check our previous interview with Dave Sobel where we discussed trends in managed services. Watch it here!
The Host Broker offers a free evaluation for owners of IT services businesses considering exiting. Learn about the acquisition process and find out what your company may be worth on the market.
If you have any questions, please don’t hesitate to contact us.
An interesting new blog from one of our partners, HatchIt, which is a platform for aggregators, entrepreneurs, and investors acquiring online and tech companies. They’ll share with us the reasons why you should hire a business broker.
As a business owner and entrepreneur, you’ve likely poured your heart and soul into your company. So, when it comes time to sell, how can you ensure the best possible outcome? Hiring an experienced business broker is a great place to start. Here are 7 reasons why you should consider hiring a broker to help sell your business:
Determining the value of your business requires both knowledge of valuation methodologies and an understanding of the landscape of buyers. A good broker will know how to properly normalize your income statement and how to apply a multiple-of-earnings assessment or alternative valuation methodology. Equally important, a broker will know whether your business is a candidate for a strategic acquisition, and how to price it accordingly. Finally, buyers prefer to purchase businesses represented by a professional because the financial information has been vetted by a third party.
An experienced broker will know how best to position your business to attract qualified buyers. Quality marketing materials, including a “teaser” summary and comprehensive overview of the business, will help attract the best buyer candidates and weed out unsuitable buyers. Brokers may also list your business for sale on their website as well as marketplace websites to target acquirers of businesses that fit your size and profile.
The universe of potential buyers for your business may be wide and diverse – from individual entrepreneurs, search funds, and fundless sponsors, to strategic acquirers, private equity firms, and aggregators. There are pros and cons to each. A good broker will have in place a robust buyer network, as well as resources to reach additional candidates, so the right parties are at the table. Additionally, a broker can help screen buyers to ensure they have the financial wherewithal to acquire your business, and the right skills to operate it.
Purchase price is just one component of an offer. Deal terms, too, significantly impact the attractiveness of a proposal. Is the buyer seeking seller financing or performance-based compensation? Are you required to stay on for a lengthy transition? A broker can help you navigate terms, make informed decisions, and communicate effectively with the parties involved. Additionally, business acquisition negotiations can be emotionally charged. An experienced broker will help the parties keep emotions to a minimum and stay focused on a mutually beneficial outcome.
Running a sales process can be time-consuming and exhausting. In addition to preparation, the seller will need to manage multiple negotiations and respond to ongoing requests for information. Most business owners have their hands full just running their business. So, it makes sense to outsource much of the effort to a professional. A broker will help you avoid any business performance issues that might emerge if you are pulled in too many directions during the process.
A sales process requires disclosure of confidential information to multiple parties. Without the assistance of a broker, it can be difficult to confidentially engage with potential buyers. A broker can approach buyers, even competitors, with a “blind teaser,” followed by a non-disclosure agreement (NDA) before any information is exchanged. Likewise, a broker is less likely than a business owner to inadvertently alert employees or other stakeholders of the sale.
There are a number of legal documents involved in a business sale transaction, including an NDA, Letter of Intent (LOI), and Asset or Stock Purchase Agreement (APA or SPA). While it certainly makes sense to engage an attorney when developing documents, a broker can help defray legal costs with access to boilerplate templates, past agreements, and a working knowledge of the key terms and opportunities for negotiation. Leveraging the knowledge of a broker to help with these agreements, while engaging your attorney for document review and counsel on key deal points, can be an effective division of labor. Finally, a broker can assist in the transfer of assets at the conclusion of a successful sale.
We hope this information is useful as you consider your options for selling your business. We operate The Hatchit Marketplace, a platform for both for-sale-by-owner and brokered online and tech-related businesses with valuations ranging from $25k to over $20 million.
The Hatchit Marketplace,
LLCResearch Triangle, NC
What’s the ROI going to be? Every Managed Service Provider wants to know, and every marketer struggles giving a good answer.
Watch Devin Rose from eBridge Marketing Solutions and The Host Broker for a discussion of various lead generation tactics and the ROI you might be able to expect. Watch the webinar on www.ebridgemarketingsolutions.com.
Hartland and Devin were recently invited to join the host of CompTIA’s BizTech podcast, Miles Jobgen, to discuss marketing MSPs during COVID. Based on the current marketing conditions, what growth strategies make sense? And given those strategies, what marketing tactics make sense?
If you’d like to give the podcast a listen, you may find the episode here. Also be sure to check out the accompanying blog entry on our sister-site www.ebridgemarketingsolutions.com. Enjoy!
Listen to the CompTIA BizTech Podcast with Miles Jobgen and our own Hartland Ross
The acquisition frenzy in the MSP marketplace shows no sign of letting up. In fact, it’s getting more competitive than ever. As a buyer, you need to move quickly to secure the best deal, but a financially successful outcome requires a methodical and deliberate approach from a merger or acquisition managed service provider. In this podcast, Community Director Miles Jobgen and President of eBridge Marketing Solutions Hartland Ross walk you through some of the key components and considerations required to complete a successful MSP purchase that is an optimized win-win for both parties and vendors. Increase profitability and avoid disaster with tips from the professionals.
Hartland Ross is an entrepreneur and the founder and president of eBridge Marketing Solutions – an agency focused on achieving both organic (via digital marketing) and inorganic (via mergers and acquisitions) growth for it’s portfolio of IT service firm clients. His primary role involves leading M&A transactions listed on their site at www.themspbroker.com which puts competitors, buyers, and sellers of MSPs and other IT service firms together. Join him today!
Increasing the value of your IT services business in preparation for a sale is not something that can happen overnight. It’s a process that involves multiple components working together and builds on itself over time, resulting in an increased value.
While your business may still be young and you’re looking forward to many more years leading its growth, your exit strategy should still be considered.
We’ve included below issues of finance, profitability, technology, agreements, and general management for you to incorporate into your plan.
Of course, when you start a business your thoughts do not immediately turn to the company’s sale. You’re focused on growth, delivering the best products and services you can, providing value for your customers, and determining how to most effectively and efficiently scale your organization.
For every business, however, there is an exit strategy. That may mean selling your share of the business to your partner, turning over control of the business to your children, allowing your employees to purchase the company themselves, or merging with or selling to another hosting provider to build a larger and more competitive organization.
Incorporating these key components into your business and model from the start will help ensure you have maximized its value when you are ready to make that exit.
If you are interested in selling your business please click here for a free evaluation Free Evaluation
In this ebook we address six reasons why you may be considering selling your business and the tactics you should employ to obtain the highest price. Click here to read the ebook.
If you are interested in selling your business please click here for a free evaluation Free Evaluation
Whether you’re buying or selling an IT services business, the M&A experience can be stressful and exhausting, especially if you try and go it alone. Not only can an experienced M&A advisor lift some of the burden off your shoulders by taking on individual tasks related to due diligence and negotiation, but they come with a great deal of strategic expertise including industry-specific knowledge and relationships with potential business partners.
Conduct your own due diligence to retain an advisor you can trust and has your best interest at heart throughout the entire process. This is critical to achieving a high valuation and a trouble-free close.
Here are 9 important criteria to assess when evaluating a potential M&A advisor.
1) Trust: While this is a business transaction with lots of financial data to pour over, at the end of the day the success of your transaction will be based on your personal relationship with your M&A advisor. As you get to know one another, you’ll probably share more private information with them than you ever anticipated. Conversations between business owners and advisors can include private chats about a contentious spouse, frustrations over the company’s limitations, previous business failures, health concerns, or other issues that you might not even tell a close friend. It’s critical that the M&A advisor you select is not a trusted advisor in name only, but that you genuinely trust them.
2) Availability and Responsiveness: Whether buying or selling a business, this process takes time and continuous communication. Phone calls and in-person meetings may be required during normal business hours, early in the morning, in the evening, or on weekends. Select an advisor who understands your business needs and is flexible enough to work around your schedule. In addition, are they responsive? How prompt are they at returning calls and emails? A successful deal requires you to respond quickly to an offer. Time is of the essence and slow responses can be the difference between securing a higher offer or losing it!
3) Organization: You may think that being organized is a trait which any successful business should have. But, consider how the potential advisors with whom you have interacted work with you. Does the advisor meet his/her commitments? Are they constantly late for calls? Have they done their homework before meetings so they can add value to your discussions? Being organized is not really something you think about but when someone is not organized you can spot it immediately. It not only reflects poorly on the advisor, but it will have a significant impact on the outcome of your business’ purchase or sale.
4) Executive Advisor vs Junior Staff: An advisory firm attempting to close a new client will often assign the company’s senior executive to meet with you to ensure you feel comfortable with the firm’s capabilities and their ability to provide you with a successful outcome. However, when the contract is signed, they often pass you off to a more junior M&A advisor with less experience and/or industry knowledge. Will the executive with whom you have initial conversations be the same person with whom you will work? Having consistent communication with the same person throughout the process enables you and the advisor to develop a trusted partnership based on a deep understanding of your business and goals.
5) What is Their Client Workload?: The M&A process takes time to complete. Does the advisor have the time to produce a successful outcome for you or are they spread so thinly that you’ll receive the bare minimum in terms of service and attention? While you may want to steer clear of a firm with a large number of clients because they may not be able to give you the attention you deserve, this may also mean that they’re very successful, with M&A candidates actively seeking them out. On the other hand, a firm with only a handful of clients may have the time to dedicate to you but they may have a small client base because they have a reputation for limited knowledge or expertise. It’s important for you to assess the firm based on all these considerations.
6) Industry knowledge: Just as you would evaluate the years of IT industry experience if you were hiring a new member of your executive management team, you should also evaluate your potential M&A advisor’s past performance and reputation in the IT industry. Have they acted as an advisor or broker for web hosters, MSPs or other IT service providers in the past? An advisor who is a specialist in IT services businesses can anticipate and help you steer clear of challenges which may come your way. They also have an in-depth knowledge of the market, competitors, and the nuances of your products, services and technology. This will enable them to more quickly spot opportunities and potential unlikely business partnerships which could end up being very lucrative.
7) Reputation: While an advisor’s reputation could be addressed in several of the items above, we believe it’s important enough to stand on its own. The IT services industry is small in the sense that everyone knows everyone. People regularly change jobs and recommend respected colleagues and industry insiders to one another. If a person has been in the IT services industry long enough to become a trusted advisor, they have built a well-respected reputation over time. If a potential advisor has continually burned bridges by not working in the best interest of their client, the word goes out around the business community and it’s not long before that advisor will be out of business. Ask to speak to business owners, industry consultants or other IT executives with whom the advisor has worked. Was the best interest of that business owner their top priority? Do they possess many of the traits that we are discussing here – industry knowledge, trustworthiness, responsiveness, honesty, organization, or availability?
8) Industry Contacts: While it’s important to be knowledgeable about the changes taking place in the IT industry, it’s also important for the M&A advisor to maintain a Rolodex of industry contacts (buyers and sellers). An advisor who is well established in your industry can not only help you endure impending business storms but introduce you to potential buyers, sellers, partners and other resources you should know. Speak to them about their connections and access their industry resources to see if they can add value to your transaction.
9) Mediation: Mediation is defined as “a dynamic and interactive process where a neutral third party assists disputing parties in resolving conflict through the use of communications and negotiation. Mediation is forward-looking with the goal being a resolution that each party can live with and trust.” Although you may not feel it’s necessary to hire a personal advisor to work with you throughout the entire M&A process, it may be helpful to hire an advisor who can act as a mediator during the valuation phase, contract negotiations, or even post close. An impartial mediator can help establish a level of trust and understanding which can lead to a successful outcome for both parties.
Whether you’re buying or selling a web hosting, MSP or other IT services business, this is an important life event. Anyone can call themselves a business broker, but a true M&A advisor will become a confidant, counsellor, and partner. Selecting the wrong person can significantly disrupt the process, reducing your business’ value and possibly ending the negotiations all together. Having the right person who is by your side throughout this journey will help align you and your business to deliver the most profitable and successful outcome.
Founded in 2005, The Host Broker has been the M&A advisor of choice for web hosters, MSPs, data centers, IaaS providers, IT security firms, SaaS providers, ISPs, and systems integrators for 14 years. We have successfully completed hundreds of transactions, working closely with both buyers and sellers. Our experience enables us to anticipate roadblocks and hazards while also uncovering unexpected opportunities.
Call us at 1-888-436-5262 to discuss how we can help you on your M&A journey. For a free evaluation of your business click here Free Evaluation.
Every CEO or business owner has a growth strategy in mind. It may change based on market factors, competitive pressures, financial implications, or other reasons but there is always an underlying strategy in place. This may include bootstrapping your business and growing organically over time, taking the company to a specific level and then selling the business to a much larger organization, or acquiring other businesses to grow your own company more quickly.
In this post, we will evaluate 10 reasons why you may want to consider acquiring another business as part of your corporate growth strategy.
Each of these benefits could be achieved through organic growth if you have the time to wait and can withstand the competitive and market pressures. Since the speed of business is the new normal in IT services, most companies cannot afford to wait the two or more years which are needed to realize the results that could be achieved in months through a strategic acquisition.
It is true that many MSPs, ISVs, hosters, and data center providers who are currently the leaders in their markets have achieved their success through acquisition. Although an acquisition strategy can provide you with the fastest means to significant revenue growth, a competitive advantage, and increased market share, only you can determine if it is the right solution for your company based on your current business strategy and future goals. Having a strong set of criteria with which to screen opportunities will go a long way to helping you evaluate what makes the most sense for you and your business.
Please contact us for more information on acquisitions.
IT industry news websites frequently distribute articles or press releases regarding the acquisition of another MSP or other IT service provider. These regular announcements would make you believe that an acquisition strategy is certain to increase your company’s market share, help you leapfrog ahead of your competitors, or develop a differentiated product offering. While it is possible to realize these benefits, it is not necessarily the perfect solution for every business.
Before you decide to merge with or acquire another company, first consider if it would be possible for your business to grow organically. Organic growth has many benefits. They include:
While these four benefits of organic expansion are enticing, the challenge is this: The IT services sector is constantly evolving, moving business and technology forward at an explosive rate. Even if you can finance your own expansion, build your own products and services, and have seen steady year-over-year growth, organic growth will take time – more time than if you chose to increase your customer base or expand your portfolio through acquisition. Can you afford to wait 18 months, two years, or more to realize your business goals or could your competitors move more quickly and take away any advantage you might currently have?
When considering if your current resources could get you where you want your company to be or if an acquisition would be appropriate to augment the expertise you already have, evaluate the skills of your current staff. Where do your teams excel and where are there gaps which you may need to fill? Think about this from a companywide perspective.
This is an important question to ask yourself, but it is often discounted as being less important than some of the others. You might answer, “Why is my motivation important? I have already made the decision that an acquisition is the perfect solution.”
Be honest with yourself when answering this question. Are you interested in buying another company simply because you have a large amount of cash lying around? Is your goal to increase sales by a specified amount over a specific period, enlarge your geographic footprint from regional to national, become a leading MSP, data center or IT service provider in a new industry vertical, or is there another reason?
Even if you do have cash in the bank, you may still be on the fence as to whether an acquisition is the appropriate option. That cash could be used for organic growth to hire more personnel, expand your marketing activities, increase product development initiatives, and enlarge your physical presence by opening new offices. On the other hand, we know that completing an acquisition can be costly upfront, but it is often less expensive in the long run after you include the additional time and resources you need to grow your business on your own.
If only a portion of the cash needed for an acquisition is readily available, how will you obtain the rest – through seller financing, a bank loan, an SBA loan, leveraged buyout, assumption of debt or other option?
No matter the company you choose to acquire, there are critical issues which will need to be taken into consideration up front, so they do not slow the integration process and potential growth.
In this post, we highlighted some of the key questions you should ask yourself to determine if acquiring another company is an option you may want to take seriously. Remember, this is a decision you need to make on your own. Don’t be swayed by industry experts, business growth strategists, or bloggers who express their opinions on how you can more quickly and efficiently achieve your business goals. The answer as to whether an acquisition is right for your company is unique to you and should be made by you based on your individual requirements.
In our next post, we will evaluate some of the benefits of choosing an M&A solution such as acquiring new technologies, access to an established pool of talent, immediate access to new sales channels, and more.
Please contact us for more information.