Deal dynamics: less than $5M in revenue for MSPs

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.

Contact us to learn more about the dynamics of MSP and how to start earning more than $5M revenue in a year.

7 Reasons to Hire a Business Broker

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:

1. Accurate business valuation and financials.

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.

2. Effective marketing.

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.

3. The right buyers at the table.

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.

4. Effective Negotiation.

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.

5. An Outsourced, Efficient Process.

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.

6. Confidential Dialog.

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.

7. Documentation.

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

Lead Generation Part 2: ROI For MSPs

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

Marketing Strategy for MSPs during COVID

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 Enjoy!

MSP Mergers and Acquisitions Roadmap: From Due Diligence to a Successful Close

Listen to the CompTIA BizTech Podcast with Miles Jobgen and our own Hartland Ross

Click here to listen

Navigate the CompTIA BizTech Podcast with Miles Jobgen and our own Hartland Ross. Acquire trending MSP business information today!

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 which puts competitors, buyers, and sellers of MSPs and other IT service firms together. Join him today!

Maximize Future Value: Key Components to Consider When Building Your IT Services Business

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.


  • Keep Separate Books for Different Lines of Business: While your business may be known for one service or set of services, your suite of services could expand over time to include domain registration, SaaS applications, managed IT services, consulting or other tech services. It is wise to keep separate books for each type of service – especially if relatively unrelated and/or non recurring such as consulting or custom development work. At the very least, use a separate line item for each service and associated expenses in your P&L statement. This will provide you and a potential buyer with the information necessary to evaluate all components of your business individually and enable you to more easily spin out select lines of business in the future.  
  • Track Revenue and Expenses in sufficient detail: Similar to the previous point, it is important to track revenue and expenses separately to the extent that some expenses may be deemed of a personal nature and discretionary (cars, gas, food, travel, health insurance etc) and not necessary for a buyer to assume.  By separating these items in your P&L, it’s much easier to recast the financials to more accurately represent the actual costs associated with supporting the business and launching new products and services.
  • Use a Popular Billing System: Billing systems like WHMCS and Ubersmith are popular with many hosting providers and systems like Connectwise are commonly used by MSPs. A key component is their rich reporting capabilities and ubiquity. Be sure that the data in your billing system is clean, and you can easily separate paying customers from friends and family accounts, free trials, test accounts, and other types of accounts which are not actual paying customers.  Selecting a billing system which is widely used across the industry and allows you to analyze and report on data in multiple ways and will give a buyer the ability to integrate systems of both companies more quickly and easily during the integration period post close.
  • Consider your pricing strategy: Legacy high paying customers can be hard to sell. Although it may seem desirable to  still collecting $25/month for shared hosting accounts, this would represent between 2 and 5 times the current market rates and although there is high margin, recognize that churn occurs during the acquisition process and when customers realize they are paying much higher than market rates, the will readily leave. This is particularly the case when they learn that the buyer likely offers a similar plan for much less money. This can create an immediate cannibalization of these newly acquired customers.


  • Create/Increase Recurring Revenue Streams: A recurring revenue stream ensures that you continue to receive revenue month after month for as long as a customer is using your services. With a recurring revenue or subscription model, the buyer knows they will have guaranteed cash flow from the start, they are buying a more stable business with a greater degree of predictability, and the recurring revenue component acts as a buffer against other areas of the business which can be more unpredictable. It is for this reason that recurring revenue businesses or components of businesses are of more value than one time revenue sources such consulting work, project work, overage fees, set up fees etc. A common threshold desired by buyers for the portion of revenue that is recurring tends to be about 60%.
  • Document Processes and Increase Automation: Documented processes and automation increase efficiencies, provide consistency across employees and teams and ensures a smooth transition for your customers from your organization to the new organization. Examples include an automated billing system for finance and written procedures for technical support or customer care teams on how customer issues are to be resolved.
  • Differentiation: Within the IT services industry, differentiation can be a challenge. How can you stand out? Differentiation centers around value-added services, capabilities, industry specific knowledge and resources such as increased automation, more in-depth technical support, and specialization. Trying to be all things to all customers by offering additional services, such as more costly managed IT solutions to what might be a primarily  shared hosting customer base or a VAR business, will dilute your abilities and messaging. Customers are looking for an IT service company to deliver a high level of performance, security, support and reliability.


  • Proprietary Technology:  While your team’s technical expertise may enable you to build a proprietary control panel which enables customers to provision and manage their own services in a unique way, the value of this customization may not equate to an increase in valuation in the eyes of a buyer. While proprietary technology enables you to build a solution that is specific to your needs, a new company may be unable to integrate your solution and data into their existing IT infrastructure and applications. Also, the addition of your customer base may be small relative to the buyers operation and therefore the adoption of proprietary technology across an existing larger customer base may not be feasible. Unless your data is easily portable, consider implementing more widely used technology that can be easily migrated after the company’s sale.
  • Straightforward and Uncomplicated IT Resources: As your hosting business grows and employees and customers come and go, there may be a tendency to implement different IT resources based on personal bias, vendor relationships, or other preferences. This can result in the use of multiple control panels, platforms, data centers, and other IT resources that are run in parallel. This can be costly for you to maintain and time-consuming and costly for a buyer to integrate. Utilizing an efficient structure limiting redundant vendors will translate into a smooth transition and ultimately a higher valuation for the seller.
  • Utilize Current Technology/Hardware: Deploying the latest infrastructure resources and offering the most current hardware, current versions of software, and security technologies to your clients has a two-fold benefit. First, it demonstrates that you are focused on your clients’ success and the value that these resources can bring to their business. Second, it assures a future owner that there will be little to no additional expenses required to migrate existing customers to the latest technology. This can be a significant cost and time savings for them. Again this translates to further value to a seller.
  • Migrations: Migrating clients from one platform to another or one software version to another can be a long and involved process, especially if you are migrating your entire customer base. If it is a migration which will result in any amount of downtime, you will need to inform them that the migration will take place, what the process will be, what they should expect, how they should communicate with you if they have any technical issues during the migration, if they will experience any downtime, how long the whole process will take and the ultimate benefit to them. As a result, it’s best to not embark on a migration just before selling the business. The actual migration and news of an impending sale of the business may prompt some customers to leave and will add unnecessary stress to your team who could be asked to migrate customers and help manage system integrations with a new buyer at the same time.


  • Short-Term Contracts Are Better: A new buyer will want to negotiate and sign their own contracts withsoftware vendors, data centers, building owners, and others. If your goal is to sell your business within the next 6 months to 2 years, don’t sign long-term contracts unless the contract states that the terms can be renegotiated if the company is sold or unless you can agree to month to month terms.  This will have a very real negative impact on the valuation.

General Management

  • Reputation Value: The value of a business’s reputation is often overlooked or under-appreciated.  Online customer comments such as Google reviews, complaints to the Better Business Bureau, or corporate litigation can live on long after they are initiated. Online searches can bring to light business or service challenges which may have impacted the company years earlier. While negative comments may have been overcome and the situation addressed and the company is once again on solid ground, any disparaging comments, no matter how old, may hurt the perceived value of the business. Ongoing reputation monitoring and management are critical.
  • Pay Attention to Intangible Assets: Similar to reputation value, there are additional business assets known as Goodwill which add value to your organization, but which can be overlooked. Goodwill is considered an intangible (or non-current) asset and may include the value of your company’s brand name, your domains, intellectual property (IP) such as patents and trademarks, and proprietary technology.  
  • Plans for Your Team: Have you thought about what will happen to your employees when the company is sold? Will you require or prefer that all your employees or just a select group be kept on after the sale? If so, for how long? Will they be contracted to complete the integration and then leave after X number of months or will they be able to stay on indefinitely? What about yourself and your business partner(s) if relevant?Do you want a role in the new organization? What does that look like? Will you be a fulltime senior executive or take on a consulting role for a limited time?   
  • Decrease Risks: Decreasing potential risks or possible disruptions to your business will help increase the company’s value for you and maximize the return for your business’ new owner.  A few examples include selling your customer base with your brand included. Work to prevent outages that will harm your brand and cause customers to leave. Require customers to pay by credit card or PayPal to ensure you will be paid and to make the transition to a new owner easier (mailed checks are harder to manage and require customers to update addresses.Don’t implement sweeping company changes, large price increases, changing out existing 3rd party vendors or make other significant changes that could disrupt customers and internal company processes.Focus on employee retention, since happy and knowledgeable employees will help maintain smooth sales and operations.  
  • Strategically Plan Promotions: Corporate marketing strategy and promotional campaigns are often planned 12 to 18 months in advance and align with your go-to-market, product launch, and business goals. As your plans for the sale of your business get closer, it is important to strategically position your promotions to avoid an onslaught of new customers immediately before the sale. Marketing promotions often include discounts to entice many new customers to come on board over a short time. While this can be perceived as a benefit, it can also reduce the value of your services. It may be perceived by existing customers who are paying the full price that your service is no longer worth the price they are paying or that your prices are not firm and could be changed at any time. It is likely that a seller will view such a large addition of new customers with limited tenure as unattractive due to the lack of a history (concerned that they will not stay), the quality of customers acquired with aggressive pricing promotions tends to be low (high churn rates) and if a promotion for a multi year plan was offered, significant deferred revenue will become an issue.

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

6 Reasons to Consider Selling Your IT Services Business and 4 Ways To Get The Highest Price

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

Your M&A Advisor: Questions to Ask and Things to Consider

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.

Experienced M&A Advisor: The Host Broker

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.

Additional M&A insights for you from The Host Broker:

10 Reasons to Consider an Acquisition as Part of Your Corporate Growth Strategy

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.

Accelerate Organic Growth with an Acquisition 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.

  1. New Resources: All of the resources of the newly acquired company will be at your disposal immediately. This includes personnel, engineering hardware and software, sales channels, physical office space, marketing materials, customer care and technical support teams, departmental budgets, IT systems including a CRM database, a marketing automation tool, and more.
  1. Expanded Customer Base: A new company acquisition inevitably comes with a built-in customer base. The value of the company’s customers may even be your reason for the acquisition in the first place. If the new customer persona is similar to your existing customer base, this is a perfect opportunity to cross-sell additional products and services to a group who is already familiar with and trusts the company you have just acquired.
    If your reason for the acquisition was to expand into a new market with a very different set of customers, this is an opportunity for you to quickly come up to speed on the needs, sales opportunities, and messaging of a different but already established customer base.
  1. Revenue Spike: Not only will an acquisition enable you to expand your product portfolio and benefit from the immediate increase in revenue that this brings, it will also enable you to cross-sell and possibly upsell additional products to both your traditional customers as well as your newly acquired customers.
  1. Eliminate Competition: Don’t you sometimes wish you could just eliminate your competition? Well, you can by acquiring them. The physical integration or bundling of the newly combined offerings could position your business as the industry leader, with no other competitor having a measurable percentage of market share. This is generally more easily accomplished in smaller geographical markets where there are fewer competitors and therefore the acquisition of one or two of the larger ones effectively removes competition.
  1. Portfolio Expansion/Differentiation: Customers do not have time to manage multiple technology vendors. In an ideal situation, they would be able to purchase the tools they need to grow their business from one or two providers. Acquisition of technologies such as virtualization, data back-up, and disaster recovery, for example, enable you to become the go-to, one-stop-shop for essential technology products and services.The product portfolio you acquire may also enable you to immediately differentiate your company, giving you a competitive edge. Bundling a newly acquired EHR solution with data encryption, for example, may provide you with a significant competitive advantage if your goal is to increase your market share in the healthcare industry. Part of the competitive advantage may also come from the increased customer “stickiness” inherent in rounding out your set of services and solutions. Stickiness means that your customers are less likely to leave due to the hassle associated with a transition to another vendor.
  1. Secure Proprietary Solutions: Developing and launching your own unique products or services is certainly a way to differentiate your business and secure a niche in your market. However, this takes a long time to accomplish. The alternative is to acquire a company that has developed their own proprietary solution. It provides you with an exclusive offering not available from anyone else and has an established customer base into which you may be able to cross-sell your additional portfolio. As another benefit, owning the IP (Intellectual Property) associated with a solution means that you likely have a competitive advantage from a cost perspective of providing these services and therefore will improve your margins. You may also wish to create another source of revenue through the creation of a reseller (channel marketing program).
  1. Expanded Pool of Talent: Finding, hiring and training new employees who can come up to speed on your business, products, and customers take In positive economic conditions, when everyone seems to already have a job, it can be an even bigger challenge. Acquiring a new talent pool through acquisition provides you with people who are already trained, reliable, and stable and may be well-known industry leaders with an established reputation and their own set of contacts.
  1. New Markets: One of the main reasons companies give for acquiring other businesses is to enter new markets. That may include expanding your business into new geographic regions or entering a new industry vertical such as healthcare, legal services, or non-profit organizations. The more quickly you can accomplish this and establish your position, the more successful you will be.
  1. Vendor Leverage: One, occasionally overlooked advantage is the ability to leverage the existing and possibly long-standing business relationships the company you acquire has with their vendor partners. Increasing your company’s visibility and buying power with IT vendors like Microsoft, VMware, McAfee, Veeam, and others can be invaluable. You can:
  • receive preferred pricing due to increased sales volume.
  • improve margins.
  • leverage deep-rooted relationships and established (legacy) pricing.
  1. Acquisition Exit Strategy: Whether you choose an acquisition strategy to expand into new markets, supplement your team, deliver a more comprehensive product portfolio, increase your customer base or for some other reason, each of these enables you to quickly enhance your company, the value that it brings to your customers and the revenue it generates. This added value may make the newly combined business more attractive to being acquired itself. The idea of making a strategic acquisition so that, ultimately, your company will be more valuable and attractive to an acquisition should also be considered.

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.

Related Articles:

Is an Acquisition Strategy Right for Your MSP Business?

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.

Is An M&A Strategy the One for You? 5 Questions to Ask

  1. Could you afford to wait?

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:

  • Ability to Self-Finance: The profits you have acquired over time can be put back into the business to hire more personnel, conduct more marketing campaigns, develop new products, just to name a few.
  • Build Your Own Foundation of Success: You may have already achieved a level of success by offering a unique portfolio of services, providing outstanding customer service and technical support, establishing your brand as an innovator in your industry, or positioning key employees as knowledge experts and go to technology advisors. You can use this success you have already achieved as a foundation to more easily expand into new geographies or industry verticals.
  • Fewer Hazards: Any company interested in acquiring another business should be thorough in their due diligence. However, no matter how much you analyze a company’s history, financials, customer base and personnel, there will inevitably be items that are missed or not revealed to you until the acquisition has been completed and you have moved on to the integration phase.
  • Steady, Sustainable Growth: Creating steady growth which accrues over a long period of time, will result in long-term value both inside and outside your organization. Inside your organization, your employees will feel a sense of purpose – that they are doing something meaningful which is beneficial to others in some way. Outside your company, building valuable solutions and lasting relationships with your customers foster personal connections and result in avid fans and increased revenue. Consistent revenue growth from an organic and ever-increasing customer base will enable you to better predict and maintain year-over-year growth.

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?

  1. Does your current team have the skills to get you where you want to be?

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.

  • It should not be a challenge for your current sales team to sell a new complementary solution into your existing customer base. However, if they are used to selling to small business owners but will now be required to sell to CIOs at large enterprises, will they be able to make the transition?
  • Will your technical support team need to be retrained to fully support new customers on a solution they are not used to supporting?
  • Does your existing marketing team have the bandwidth to develop new programs for solutions in your development pipeline? Do they already understand the market you will be selling into or will research need to be conducted before your go-to-market plan is put in place?
  1. What is your motivation to buy?

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?

  1. Do You Have the Cash?

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?

  1. How quickly and easily could a newly acquired company be integrated into your existing business?

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.

  • Is there a cultural fit between your two management teams and broader staff?
  • Do you have the same internal IT systems – for example, CRM databases, marketing automation tools, and accounting systems? Similar backend technology will make data processing easier and technology integration can be completed more quickly. Completely disparate systems will require additional financial and human resources as well as time to integrate.
  • How will human resources, finance, and other overlapping departments be integrated? Will any team members be let go?
  • How will you announce the acquisition to your current customers and the customers of the newly acquired company? How will these customers benefit from the acquisition?
  • Will the company continue to do business under your brand or will the name be changed in some way to represent the new organization?
  • How will your sales and marketing initiatives change to reflect the new business and product portfolio? This may include sales presentations, product positioning, website redesign and content changes, etc.
  • Will the executive management team of the newly acquired company remain as part of the new organization? Will some members of the team be asked to leave? Over what period of time?

Next Step in A Successful MSP Purchase

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.

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