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?

2. 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?

3. 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?

4. 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?

5. 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.

Related Articles:

• M&A for MSPs As an Option for Growth – A Webinar
• 10 Reasons to Consider an Acquisition as Part of Your Corporate Growth Strategy
• Build or Buy – What’s the Best Route for Business Growth?
• What Can Go Wrong When Purchasing a Hosting Business or Customer Base? A Buyer’s Perspective.