The 4th session of ExitCon 2024 hosted by Devin Rose, with Guest Speakers:
ExitCon is an online event designed to provide MSP Owners with the knowledge and tools they need to plan a successful exit strategy. This conference features industry experts who will share their insights and experiences on navigating the complexities of selling an MSP.
The session focuses on strategies for achieving post-close success in MSP acquisitions, emphasizing employee retention, cultural integration, and maintaining customer relationships. Key points include the importance of clear communication, addressing employee concerns proactively, and aligning technology stacks to support long-term growth and integration.
Got more questions? Contact us now!
The 3rd session of ExitCon 2024 hosted by Hartland Ross, with Guest Speakers:
ExitCon is an online event designed to provide MSP Owners with the knowledge and tools they need to plan a successful exit strategy. This conference features industry experts who will share their insights and experiences on navigating the complexities of selling an MSP.
The discussion revolves around the valuation and market dynamics of MSP businesses, highlighting factors such as market consolidation, valuation metrics beyond EBITDA, and the importance of clear financial transparency and standardized accounting practices to attract potential buyers and optimize business operations. Key insights include the impact of acquisition trends and the necessity of preparing comprehensive financial documentation for effective decision-making and successful transactions.
Got more questions? Contact us now!
The 2nd session of ExitCon 2024 hosted by Hartland Ross, with Guest Speakers:
ExitCon is an online event designed to provide MSP Owners with the knowledge and tools they need to plan a successful exit strategy. This conference features industry experts who will share their insights and experiences on navigating the complexities of selling an MSP.
The discussion focuses on preparing an MSP for sale, emphasizing the importance of having long-term, stable client contracts and implementing best practices to maximize the business’s value. Key reasons for selling include focusing on another business, retirement, and burnout, while challenges such as ensuring cultural fit and maintaining transparent financials are highlighted. Proper due diligence and understanding the buyer’s strategy are crucial for a successful sale.
Got more questions? Contact us now!
The 1st session of ExitCon 2024, hosted by Hartland Ross.
ExitCon is an online event designed to provide MSP Owners with the knowledge and tools they need to plan a successful exit strategy. This conference features industry experts who will share their insights and experiences on navigating the complexities of selling an MSP.
The session discusses key considerations for MSP owners contemplating a sale, including reasons for selling, such as retirement and burnout, as well as the impact of COVID-19. It highlights the importance of setting expectations, understanding valuation, managing customer concentration, and documenting revenue trends. Additionally, the role of intermediaries in facilitating better buyer-seller matches and smoother transitions is emphasized.
Got more questions? Contact us now!
Our Team’s Hartland Ross recently joined Tim Fitzpatrick on the Realto Marketing podcast. In this engaging episode, Hartland delves into the complexities of M&A, offering invaluable insights for anyone considering buying or selling a business. Whether you’re a novice or an experienced professional, this podcast is a must-listen.
Establishing trust early in the negotiation process is crucial. Hartland emphasizes the importance of rapport-building from the first interaction, whether through Zoom calls or in-person meetings. This trust lays the foundation for a smooth transaction.
The diligence process is where the buyer evaluates the opportunity. Hartland highlights that the speed and accuracy of information exchange can significantly impact the buyer’s confidence and the overall success of the deal.
Hartland advises buyers to focus on deal-killer issues that can make or break a transaction. Identifying these early can save time and resources for both parties.
One of the most common deal-breakers is a mismatch in valuation expectations. Hartland explains the importance of realistic valuations based on market standards and not personal financial needs or aspirations.
Having the right legal and financial advisors familiar with M&A processes is essential. Hartland shares examples where incorrect advice from inexperienced advisors led to complications, stressing the need for specialized expertise.
Prolonged negotiations can lead to deal fatigue, where parties lose motivation to close the deal. Hartland stresses the importance of sticking to agreed timelines and maintaining momentum to avoid this pitfall.
Hartland Ross’s insights are not only profound but also practical, providing a roadmap for navigating the often-turbulent waters of M&A. Don’t miss out on this opportunity to learn from one of the best in the industry.
Tune in to the full podcast episode here and elevate your understanding of mergers and acquisitions today!
Hartland Ross joined Adam Morris and Daniel Welling in the latest episode of “It’s a Numbers Game,” chatting about marketing as well as mergers and acquisitions for MSPs.
Discover effective marketing techniques for organic growth, learn the ins and outs of M&A in the MSP space and get tips on preparing your MSP for a successful sale.
Tune in here.
When you sell your MSP with The Host Broker, our processes assure that your business is going to receive enough interest from potential buyers to return fair market value (or greater). In today’s blog, we’ll demonstrate by looking at milestones in the selling process from a numbers perspective.
For our new listings, we create a one-paragraph summary of the business which acts as a teaser for interested buyers. It identifies the nature of the business, the geographical scope, some high-level financial metrics, the seller’s reason for exiting, and anything else that is unique about the business. We distribute this blurb across multiple channels:
While it is difficult to come up with a precise tally, when you add up the estimates for each channel, it is safe to say the number of potential buyers reached when you list with The Host Broker is in the 1000’s.
When a buyer is interested in receiving more information about a listing, their next step is to request and sign a non-disclosure agreement. Once signed, we then send them a package containing more information about your business including a Company Overview document, balance sheets, and profit & loss statements.
For a typical MSP listing, we’ll have several dozen potential buyers who sign the seller’s NDA.
After a buyer has reviewed the package, if they are interested in moving forward, the next step is usually to arrange a discovery call with the seller. Sometimes, a buyer may have questions they’d like answered prior to having a call. In any event, the call gives both parties an opportunity to become acquainted and to ask each other questions about operations, key clients, employees, company culture, or anything else that is important to them.
Ultimately, most MSP listings result in 10-15 phone calls between interested buyers and the seller although this can be increased or decreased based on how rigorous the qualification process is.
After a call with the seller, the buyer will decide whether or not to put forward an offer. Often this will take the form of a Letter of Intent. An LOI is a non-binding agreement which establishes expectations for the key deal terms such as the valuation, payment terms, exclusivity, non-compete clause, access level to materials during due diligence, what is being purchased and more. The LOI typically has an expiration date. Some buyers will instead put forward an informal offer detailing the valuation and payment terms, then will graduate to a formal LOI upon request from the seller.
Most owners of MSPs who list with The Host Broker end up with 3-6 LOIs to choose from, again depending on how stringent the qualification process is.
By going through the selling process, sellers end up with several competing LOIs to choose from and can be confident they are being offered a fair price for their business. But price isn’t the only consideration. Sellers also consider which LOIs have the most favorable payment terms, their rapport with the buyer, whether the non-compete clauses align with their future plans, whether their employees/clients will be well-served by the potential buyers, and more.
Factoring all that in, the seller chooses one LOI to sign, and proceeds to the due diligence period.
During the due diligence phase, the chosen buyer gains access to and reviews key documents including financials to verify their accuracy. Legal and operational reviews are conducted. If needed, this is also when the buyer may secure financing, and their bank may have additional requests for documentation. Negotiations and adjustments rarely, but sometimes may occur based on the findings.
This phase is a thorough examination of the business working towards finalizing a purchase agreement and may take 2-4 months.
Once due diligence is complete and both parties are satisfied, their attorneys take over to negotiate the purchase agreement. It usually requires multiple rounds of iterations to align the purchase agreement with the buyer and seller’s intent and to ensure legal compliance.
Finalizing the purchase agreement typically takes several weeks, but once agreed to, is signed, and the acquisition is official!
Selling your MSP with The Host Broker guarantees exposure to thousands of potential buyers through various channels, results in multiple competitive offers, and culminates in one purchase agreement that is satisfactory for both parties. Contact The Host Broker to explore whether selling your MSP is a good fit for you.
In this podcast episode, Joe, Jeff, and Hartland Ross discuss the importance of having an exit strategy and processes in place for MSPs to avoid burnout and increase the value of their business. He also highlights the benefits of acquiring and growing a book of business and advises sellers to understand the limitations of their business and what it is worth. The conversation also touches on the emotional process of selling a business, and how one may want to consider what they plan to do once the business is sold.
So much attention is paid to the valuation in M&A for IT services businesses but sometimes the importance of other factors isn’t fully appreciated. Buyers should realize that sellers also judge offers by the deal terms, payment structure, timeliness of the sale, and whether the sale is an asset or share sale. Additionally, having a level of trust between buyer and seller, having a cultural fit between both companies, and addressing the seller’s role post-close are crucial factors for putting forward an attractive offer. The combination of these factors, which we’ll discuss in today’s blog, may influence a lower valuation offer to be seen as the better offer from the seller’s perspective.
The deal terms refer to the specific conditions of the sale and have a significant impact on the perceived strength of an offer. Deal terms can include structures such as bonuses or earnouts, which are performance-based payments. Earnouts are often preferred by buyers when there is risk associated with the acquisition. For instance, if the business has a key client that makes up the bulk of revenue, an earnout can help mitigate the risk of that client leaving; or maybe the business has customers in countries where there’s a tumultuous business climate, and an earnout mitigates the of regulatory risk. On the flipside, because earnout payments are based on the future performance of the business, they may also be an attractive option for sellers who believe their business will continue to grow post-sale.
Payment terms refer to how the buyer plans to pay for the business, whether it’s a lump sum payment on close or installment payments over time as well as the frequency of these payments. Sellers likely prefer a lump sum payment on close, but installment payments can allow a buyer to get to a higher valuation, aid with cash flow, in addition to providing some security by maintaining a degree of leverage.
Another important factor is whether the sale is an asset sale or a share sale. In an asset sale, the buyer only purchases specific assets of the business — most importantly the customer list and annuity stream (goodwill) — but also potentially equipment, inventory, or even real estate. In a share sale, the buyer purchases the entire company, including all assets and liabilities. Asset sales are typically less complicated and less risky for buyers, while share sales can make taking over operations much simpler but may come with lower valuations. There are also tax implications, with sellers usually benefiting from a share sale and a buyer usually benefiting from an asset sale. Most transactions we broker are asset sales due to the simplicity and generally lower costs.
From the onset, sellers want to feel confident that the buyer is trustworthy, reliable, and committed to completing the sale. This trust and confidence can be established through sincere communication, transparency, and trying to build a rapport with the seller. While negotiations typically start with an online meeting, eventually taking the time for an in-person meeting (if feasible), can go a long way. Buyers who make the effort to get to know the seller, understand their goals and motivations, and demonstrate a genuine interest in their business may put themselves ahead of a competing offer at a higher valuation.
Read our blog about why ‘First Impressions Do Matter’.
Culture fit refers to the compatibility of the buyer’s organizational culture with that of the business being sold. A lack of cultural fit can complicate the sale and post-sale transition, resulting in a drop in employee morale, productivity, and retention which has the knock-on effect of creating customer churn. Buyers are well advised to assess the existing culture of the business, identifying areas of compatibility and incompatibility, and present a plan to bridge any gaps.
Cultural integration is a two-way street, and the seller also has a responsibility to be open to the buyer’s culture and values and to work collaboratively to achieve a successful integration. By working together, the buyer and seller can ensure that the sale of the IT services business is a positive and productive experience for all involved, and that the cultural fit is aligned for long-term success.
Sellers are often emotionally attached to their business and want to be involved for a period post-sale to ensure that it continues to be successful after they leave. In other cases, they might be motivated to retire, or to focus on other business endeavors, in which case they would view a lesser role appealing. In either case, sellers are interested in knowing what their involvement and compensation will be post-sale.
Discussions should be had about the transition period, the seller’s involvement in the business, and any potential consulting or advisory roles. Buyers can also communicate their plan for integrating the seller’s knowledge and expertise into the business. By addressing these concerns upfront, buyers can build trust with sellers and establish a positive relationship that can lead to a stronger offer.
A timely sale is important to most sellers. In addition to being prepared and organized, buyers can also ensure a timely offer by having funding secured in advance. This helps to streamline the process and ensures that the buyer can move quickly once an agreement has been reached. If a buyer is unable to secure funding or is otherwise delayed in the process, it can cause frustration and uncertainty for the seller and may cause them to prioritize other offers.
While there’s no doubt the valuation is very important, these other factors we discussed in today’s blog are also key considerations for sellers when evaluating offers for their IT services business. Favorable deal terms, rapport and trust with the buyer, culture fit, employee retention, the seller’s role post-close, and the timeliness of the offer all play a role. Buyers who take these factors into account when making offers are more likely to successfully close deals. The more favorable elements a buyer can integrate into their offer, the more likely their offer will be compelling, and there is the real potential to be a successful bidder despite a lower valuation.
Mergers and acquisitions (M&A) are complex transactions that require a great deal of preparation, negotiation, and collaboration between the parties involved. One of the most critical aspects of any M&A deal is making a good first impression. Unfortunately, many buyers overlook the importance of a first impression, assuming that the valuation and payment terms are all that matter to a seller. However often the seller’s perspective is that they want a good home for their clients, their employees, and themselves if they’re staying on post-acquisition.
In this blog post, you’ll learn the importance of a good first impression in M&A transactions as well as provide tips on how to make a positive impression on the seller.
The first impression sets the tone for the entire transaction. If the buyer comes across as disrespectful, unprepared, or uninterested, the seller may feel hesitant to move forward with a transaction. So it is important for the buyer to make a positive impression on the seller and demonstrate their professionalism, respectfulness, and interest in the seller’s business. By following these tips, buyers can establish a positive relationship with the seller and increase the chances of a successful deal.
Whether it’s in person or virtual, being punctual shows that you respect the other person’s time and are serious about the transaction. It also demonstrates your reliability and professionalism. If there are unexpected delays or issues, communicate them promptly and clearly to the other party. Being on time is a simple but important way to set the tone for a successful M&A transaction.
Dressing professionally for video calls is an important aspect of making a good first impression in an M&A transaction. It demonstrates that you take the transaction seriously and respect the seller’s time and effort. To dress professionally, choose clothing that is appropriate for a business setting, avoid distracting patterns or colors, and consider your background and surroundings. Also, ensure that the lighting and audio quality of the video call are suitable. Although these may seem obvious, the following are all based on experiences we’ve had. Taking calls in moving cars or coffee shops with background noise is annoying and frustrating for others on the call. Constantly dealing with your dog barking or kids yelling is equally annoying. Wearing hoodies, exposing armfuls of tattoos, smoking or drinking alcohol while on the call, should also be avoided.
Avoiding politics or controversial issues is important during an M&A transaction and discussion process, as these topics can be divisive and create tension between the buyer and seller and these days are very polarizing. It is crucial to keep the conversation focused on the business and transaction, rather than personal or political beliefs. By avoiding controversial topics, the buyer can create a comfortable and productive environment for the discussion of the transaction. The conversation should focus on the business and its strengths, areas for growth or improvement, the buyer’s company and culture, and how they plan to integrate the acquired business into their operations.
Complimenting the seller on their business indicates that the buyer values the seller’s efforts and accomplishments and has conducted thorough research on their business. Specific and genuine compliments can help to establish a shared understanding of the business’s potential and facilitate productive discussions about the transaction. The buyer can also ask the seller about their goals for the business and their vision for its future to ensure that both parties are aligned in their goals for the transaction.
The buyer should highlight their own company’s strengths and what sets them apart from other companies, emphasizing their values and approach to business. The buyer should emphasize their approach to treating employees to demonstrate their commitment to maintaining a positive work environment and employee well-being after the transaction. This can be achieved by discussing specific employee benefits, programs, and company culture, while also showing interest in the seller’s current approach to employee well-being. By highlighting these aspects and outlining how the acquired business will be integrated, the buyer can build a positive relationship with the seller and set the stage for a successful and smooth transition.
Positive body language demonstrates confidence and friendliness, which can help to put the seller at ease and establish a positive rapport. It’s important to maintain good eye contact and a friendly smile throughout the meeting or video call, as this shows that you are engaged and interested in what the seller has to say.
During any business meeting or negotiation, it’s crucial to be attentive and respectful towards the other person. This means actively listening to what they have to say and asking relevant questions to show that you are interested in their perspective. By being attentive, you can better understand their needs and concerns and address those concerns proactively. Additionally, showing respect towards the other person can help build trust and establish a positive working relationship.
After an initial meeting with a seller, it’s important to follow up with a thank-you note or email to show appreciation for their time and interest. This helps establish a positive relationship with the seller, to clarify your interest level, and to ask questions. Then if there are follow up questions asked by the seller, it’s important to answer promptly to demonstrate the buyer’s seriousness and how easy it will be to work with them. Following up effectively can help build trust and establish a strong foundation for a successful M&A transaction.
Making a good first impression is crucial for any M&A transaction. A positive first impression sets the tone for the rest of the deal, and it can make all the difference in establishing a productive working relationship between the buyer and seller. It’s important to be punctual, dress professionally, avoid controversial topics, compliment the seller, speak to your corporate culture, use positive body language, be attentive and respectful, and follow up promptly after the initial meeting. By following these tips, buyers can create a positive environment for the transaction and increase the chances of a successful deal. A good first impression demonstrates the buyer’s professionalism, respectfulness, and interest in the seller’s business, and sets the stage for trust which is key for a smooth and successful transaction.