MSP Success Magazine June/July 2022 | Page 13

ideal MSP target is a business that generates over 50 % of its revenue from health care verticals . “ We are looking for strong customer retention ,” Matt said . “ Anything above 10 % is a high churn rate .”

Customer Concentration — “ If one client is over 10 % of revenue , we tend to dig a little deeper to understand the nature of the client relationship ,” Mitch said .

Compatible Professional Services Automation ( PSA ) System — Integrating with a business that uses the same PSA makes everything go smoother . “ A proprietary in-house PSA can complicate things when it comes to integration ,” Matt said . “ We make exceptions , but ideally , the businesses we ’ re acquiring are on ConnectWise .”

Other Factors — The company location , how quickly the area is growing , and what verticals the business is in also contribute to whether a company is a good fit . For Anatomy IT , strength in cybersecurity and HIPAA compliance are also big factors . “ Given the fact that the MSPs we ’ re investing in deal with sensitive patient data , security and compliance are paramount ,” Matt said .

Cultural Alignment — Thirty percent of all integrations fail because of different company cultures , according to the Culture Management and Mergers and Acquisitions case study by the Society for Human Resource Management . The cultures around decision-making , leadership style , how people work together , and the willingness to implement new strategies must align .

Excellent References — Ask for the names of other MSP owners who have been previously acquired and talk to them about their experience . “ When I was doing my due diligence , I asked for a list of MSP owners who had sold , had

re-invested , and were still working in the company ,” said Brent Whitfield , CEO of DCG Technical Solutions ( that became a New Charter company two years ago ). “ In every case , they would give me one name , maybe two names ; New Charter gave me 17 .”

Provides The Right Answers To Your Questions — Brent found that many MSP owners looking

to sell their business start by asking , “ What multiple will you guys pay ?” “ That should not be the first question ,” Brent said . “ The first questions should be , ‘ What is your plan moving forward ?’ and ‘ How would I and my employees fit into that plan ?’”

The Right Type Of Stock — If you re-invest , make sure the stock you receive is the same class of stock the owners own . “ We ’ re investing our own money alongside the entrepreneur , and by doing so , we don ’ t play by the private equity rules ,” Dan said . “ Because of that , the entrepreneur is in the same class of stock that we own .”

The Opportunity They Offer You — MSP owners benefit by becoming part of a business that is actively building out its capabilities . These include things that most individual companies may not choose to invest in , such as new hardware , software , cloud services , and future services like AI ( artificial intelligence ) and IoT ( Internet of Things ). “ It ’ s a unique opportunity to be able to sit at the table and develop the strategy together with a group of their peers while continuing to run their business on a day-to-day basis ,” Dan said .

A lot of factors go into determining the price someone is willing to pay for your MSP business . Two MSPs doing the same yearly revenue can have two completely different values in the eyes of investors . As a rule of thumb , an MSP doing $ 5 million in revenue is worth 5 – 6 times EBITDA ; $ 10 million in revenue , 7 – 8 times EBITDA ; and $ 15 –$ 20 million in revenue ( or more ), 10 times EBITDA .

Whether or not you ’ re planning to sell your company anytime soon , if your company is falling short in any of the above applicable areas , now is the time to act so when the time does come , you can maximize both your exit and peace of mind . n

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