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Looking to add a new specialization to your business or expand your customer reach? Or, on the flip side, are you hoping to cash out and retire in a few years? Either way, there are a number of things you need to know before pursuing M&A discussions ̶ to protect your interests, as well as those of any employees involved in the transaction. From negotiating the price and other sales terms to building a transition plan, the process can be complicated and expensive for providers and vendors (if you let it). That’s why experienced advice is so valuable…though it’s not so easy to come by.
That is, unless you made it to the ChannelCon 2016 discussion on mergers and acquisitions strategies. Moderated by Joe Panettieri, Content Czar of ChannelE2E, this session featured a panel of five IT industry executives who have been involved in buying or selling a business, or both.
The expert panelists included:
With so many knowledgeable M&A tech professionals on the panel, the session was packed full of great information for MSPs. All the executives shared experiences and lessons learned from their own business sale or acquisition, and Panettieri added a variety of industry proven best practices and research to the conversation. Each story and situation was fairly unique.
One of the largest obstacles in M&A transactions is determining a fair price for both parties. Panettieri shared an interesting stat to kick off the discussion on value, “An MSP’s estimated valuation, according to Paul Dippell with Service Leadership, should be between 6-8 times EBTA.” He emphasized that metric may vary widely and is heavily dependent on factors such as profitability, company specializations, contracts, and other attributes a potential buyer may value.
Other suggestions from the expert panel include being up front with employees and offering retention incentives when appropriate. Documentation for all key processes should be complete and easily transferable, ensuring that the MSP business can operate without you. That last point can be a big selling point for acquirers looking to expand their market presence, not their management team. Many buyers look for companies that can go on without the owner, not companies that ARE the owner.
Panelists also emphasized the need to find brokers who understand the industry, especially those who know the gatekeepers to potential acquirers. And while lawyers are crucial in the M&A process, to review documents and vet stipulations, remember they typically get paid by the hour. They may not care if the process lags on longer than it should while brokers, who often get paid at the end, may push things along at a brisk pace. As in any industry, expect to find experienced M&A professionals as well as the dabblers. The former may come at a premium price, but the ROI will surely make it worthwhile.