M&A 360: My Perspective on a Successful MSP Sale – From the Seller’s Side

I sold my beloved managed services provider (MSP) company to Ntiva, Inc. in 2022, and it’s the best business decision I’ve ever made. It was also a learning process and a huge undertaking.

I wrote this blog to help MSP owners who are in the position I was in. Even if you don’t have plans to sell your MSP company soon, the odds are that you will sell it one day. Here’s what you need to know.

Market Dynamics

The good news is that you’re in the right business. Global spending on MSPs is forecasted to grow at a rate of 12% to reach $203.88 billion by 2032. Market demand is pushing MSPs toward an everything-as-a-service (XaaS) model where customers expect MSPs to cover all IT needs, including cybersecurity, digital transformation, networking, artificial intelligence solutions, cloud services, and helpdesk services. Along with rapid growth, these factors are creating a favorable environment for mergers and acquisitions (M&A).

This new reality for MSPs comes with both opportunities and challenges. Double-digit growth in any industry is a good thing, but as digital transformation changes every industry and business, individual MSPs will need to cover a broader range of services.

Cybersecurity may be the most pressing example. As more customers seek to bundle cybersecurity into MSP scopes of work, the cost of acquiring cybersecurity insurance, as well as expensive tools and staff, are becoming non-starters for many MSPs.

The most important takeaway here is that despite the current market headwinds from high-interest rates, the industry is rapidly growing and evolving. It’s reasonable to expect that if your company is successful, you will have an opportunity to sell it sooner or later. Run your business with this in mind.

Self-Assessment

Now is a good time to assess where you are in your journey as a business owner — and where you want to end up. It’s important to know where you stand, because you never know when opportunities will present themselves.

Case in point: I sold my company to Ntiva in 2022, but they had initially approached me three years prior. The timing wasn’t right for either party then, but it got me thinking about my company and the future I envisioned for it and for myself, especially after I met with Ntiva, Inc. CEO Steven Freidkin .

Steven asked me questions that I couldn’t or didn’t want to answer. To be honest, what I thought was going to be an exciting meeting was actually very frustrating. I went home and realized I needed to make some changes if I wanted to have a desirable business. I also walked away feeling confident about other choices I’d made and decided to double down. Even though the discussion left me with mixed feelings, meeting with a potential buyer lit a fire under me.

I thought about where I was professionally and personally in terms of accomplishments and future goals. I made a plan for what I was going to eliminate and what I was going to grow — including my profits.

It’s crucial to have a clear understanding of where you are and the trajectory you envision for yourself before beginning the process of selling your MSP. Knowing these priorities in advance will greatly clarify decision-making leading up to the M&A process.

Start Preparing Your Business for Sale

Hear me out, even if you are nowhere close to considering selling your business: Founders and business owners have strong emotional connections to their companies.

We describe our companies as our dreams — or even our babies. I get it. Trust me, I gave my company the same amount of attention as I did my three girls. Sometimes even more. I understand the strong bonds that are formed by growing something from an inkling of an idea in your head to a profitable business that serves customers, employs talented and dedicated people, and is a source of financial stability for your family.

But if you zoom out and look at your company through a more objective lens, you’ll see what it actually is: an asset. Your company is something of value, and you can take steps to make it even more valuable.

Your first and most obvious priority is to keep your books pristine. Pretty good isn’t good enough. When the time comes for your company’s valuation to be determined, your financial systems and records will be thoroughly scrutinized, and any gaps, weaknesses, or errors will raise red flags for potential buyers. Significant findings can derail deals.

Why risk it? You’ll likely want to sell your company one day, and getting your finances in order now will be one less thing to worry about — whether you sell your company or not.

Build the Right Team

Selling your MSP will be a full-time job in itself, and having the right team around you will give you the perspective and know-how you’ll need to successfully navigate the process. You’ll need an attorney, of course, and you may already work with one. If not, ask your colleagues who have sold their companies.

However, before you choose to involve a particular attorney, be sure to verify their level of M&A experience. There are a couple of important considerations when it comes to retaining an attorney to represent you through the M&A process.

The first and most important qualification is significant experience representing clients through M&A transactions. You’ll want someone who specializes in M&A, rather than a generalist who has some M&A experience. Beyond experience, I think it’s also important to have an attorney who understands the cooperative nature of a successful M&A deal.

While their sole job will be to advocate for your best interests, they should also be able to recognize reasonable requests and positions from the acquiring organization. It can be tempting to hire someone who takes a more aggressive approach, but in my experience, those personas can slow down and unnecessarily complicate deals. It can even make a deal fall apart and create stress that no one needs.

Are there times to put your foot down? Absolutely. But with the right buyer, those times should be few and far between, and an experienced M&A attorney will be able to distinguish the little snags from the real showstoppers.

In addition to legal support, it’s ideal to assemble a group of trusted and experienced peers who have direct experience with M&A. In my case, I was able to rely on feedback from my leadership accountability group, and their input was immensely helpful. There are lots of M&A peer groups these days, and I highly recommend joining one if you are serious about selling your company.

Determine Valuation

While the price you ultimately agree on is the detail that gets the most attention, it’s also one of the most straightforward aspects of the M&A process. Your goal should be to figure out what the market will likely bear for your company, considering the value of your brand, sales pipelines, contracts, staff retention, client references, revenue projections, assets, reputation, and liabilities.

Refer to industry resources from organizations such as MSPAlliance to help you work up an initial valuation. There are numerous formulaic approaches based on using a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA) or other indicators. Once you have an initial valuation, consult with your support team to validate your estimate or point out any errors or oversights.

In addition to the quantitative valuation, account for any under-the-radar assets that make your company unique. It could be an emerging capability that is expected to bring in significant revenue in the near future, or it could be knowledge about a client’s expected growth or expansion that will lead to more business.

My colleague Christopher Vollmond-Carstens (CVC) refers to these value-adds as “diamonds in the rough,” and you should keep them in mind as you finalize your valuation.

My company’s diamond in the rough was its application development capabilities. I had invested a great deal of time and money in building our application development team, and I knew it was a major asset. Ntiva recognized the value of this capability, and it was a major selling point for them.

Vet Prospective Buyers

From the outset of M&A discussions, keep in mind that you must vet potential buyers just as thoroughly as they will vet your company. Ask to see their financials, HR policies, benefits packages, and any other documentation that will help you assess the overall health of the organization and its growth potential. Take notes, ask questions, and task members of your support team with evaluation-specific topics when their expertise aligns. Talk to at least two owners who sold their companies to your potential buyer.

As you work with the buyer’s team, pay attention to their attitudes and behaviors not just toward you, but with each other as well. Your observations will help you assess the organization’s culture and determine if it’s a good fit for your MSP.

As discussions progress, it’s natural to be excited about the possibilities. But always keep in mind that there are other fish in the sea. If you get a bad feeling about the buyer or they behave in a way that’s unethical, disrespectful, or otherwise unacceptable, hit the brakes and walk away.

If they are unpleasant so early in the courtship phase of the M&A process, expect them to be equally unpleasant — or worse — down the road.

Final Tips for the Home Stretch

The road to completing an acquisition is a long one, and you should prepare yourself for the long haul. First of all, take care of yourself. Your schedule will be more demanding than ever, but make time to breathe, exercise, meditate, or do whatever you do to take care of yourself. Running yourself into the ground six months out from the acquisition date will not serve you well.

As the process moves forward, establish a timeline for notifying your executives, managers, and employees about the acquisition. The leadership team will need to be notified at least a few months in advance so they have time to organize processes and departments. In addition, they can support you and share the workload during the due diligence process. This will enable a smooth transition, as your teams and processes will be aligned with those of the buyer before closing day.

It’s worth noting that some sellers prefer to take a much more closed-circle approach and not share until the process is much further along and the deal is nearer to closing. Ultimately, it’s up to what you feel comfortable with, but know that buyers will be keen, and some may expect to meet with your leadership team during due diligence. If you aren’t planning to share with anyone prior to closing, you should have a very compelling reason for your decision, as limiting interaction between your leadership team and the buyer could raise a red flag.

In most instances, it will only be necessary to notify employees within days of the deal closing — or even the day after you close. Take time to plan a detailed communication strategy, to ensure your communications are clear, concise, and proactive. To break the news, I recommend calling a mandatory meeting and presenting the deal positively, as exciting news. Draft all of the planned communications in advance, and also have a set of FAQs available immediately following the notification.

If possible, arrange for the leadership team of the acquiring company to visit your organization in person. This will relieve some of the anxiety that employees will naturally feel. It will also provide an opportunity for the buyer’s leadership team to present positive benefits for employees, such as new career paths or enhanced benefits packages. We held a mandatory meeting two days after we closed, which was very helpful to everyone — especially my employees.

My final and most important tip is to never take your eye off the ball — even after you sign the agreement. Buyers will be watching your financials every month, and they’ll expect you to retain key employees and customers. If your business takes a turn for the worse, they can renegotiate or even walk away.

Stay Tuned for a Perspective from the Buyer’s Side

I hope this blog is helpful for business owners who are considering selling their MSP. Be sure to check out my colleague Christopher Vollmond-Carstens blog about the buyer’s side of the M&A equation in the MSP space. Feel free to message me if you have questions or would like my help.

Questions? Leave a comment below.