8 Tips for Partners Considering M&A
Partners need to identify a trustworthy confidant and ask themselves the hard questions about acquisitions.
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PlanetOne CEO Ted Schuman said you should consider why you’re pursuing a sale. Will this actually enhance your lifestyle?
“Surround yourself with a good team of advisers and remember that this is a very personal decision,” Schuman said. “Are you checking out or are you going to retrench and do it again? What’s the driver? Is this FU money? If not, the power of residuals is real.”
PlanetOne COO Chris Werpy echoed those comments.
“You built your business through blood, sweat and tears. Do not let fatigue be the only reason to sell,” Werpy said. “You have to own this decision.”
Is your primary goal to expand? Schuman said expansion doesn’t necessarily require consolidation. Especially if that means fundamentally altering your business.
“You don’t have to sell out to scale up. If you’re not looking for a boss, look for a better partner,” he said.
Simplicity VoIP’s Ben Humphreys encouraged partners to use an attorney trained in M&A. Someone encouraged him to do that when he started exploring the sale of Comtel.
“M&A attorneys specialize in mergers and acquisitions. They generally are more expensive but will save you in the long run,” Humphreys said.
This type of lawyer can show you what you need to address. That includes representations, warranties, idemnification, schedules, tax allocation and more.
“The best part is that they don’t get bogged down in minutiae,” Humphreys said. “A good M&A attorney will navigate you through the deal. You will be faced with many decisions along the way and this attorney will outline the pros and cons so that you can make an informed decision.”
Werpy agreed.
“This is your life and your business. Do not go this alone, and don’t use Cousin Vinny as your attorney.
Humphreys urged partners to consider tax allocation.
“It is critically important to have discussions with your accountants and confirm how any proposed sales price will be allocated. The way the sales price is allocated can mean the difference of receiving capital gains tax rates versus ordinary income tax rates,” he said.
No agent partner firm has gotten more press this year around M&A than Upstack. Upstack founder and CEO Christopher Trapp encouraged partners to closely assess their potential investment partner. He put forward five questions to consider:
• Does the partner have a track record of success?
• Does the partner have the resources to ensure my success?
• Is the partner committed to our partnership in both the good times and bad?
• Is there a good cultural fit? Can I envision working well with this partner and their team?
• Do I trust them?
If you wish to proceed with a sale, Humphreys advised starting by updating your minute book. Ensure that your stock ledger and other organizational documents are compiled. Humphreys said the next event is the asset purchase agreement (APA), followed by schedule creation. He said Comtel assembled upward of 30 schedules before Telarus acquired it.
“Hang on. Depending on the acquirer and the requirements of the deal, you will spend the bulk of your time sorting through and documenting the schedules. Think of the APA as the overarching document with the schedules being the reference point,” he said.
Werpy encouraged agents to evaluate the cold, hard numbers.
“Do the math. You may make more money running the business profitably for the next three years vs. selling and then paying for it through taxes and supporting your lifestyle. That’s the analysis that is easy to miss — what makes the most sense financially? What preserves the lifestyle, continuing or selling?” Werpy said.
He pointed to contracted monthly recurring revenue as the key measurement of value.
“When potential buyers or investors go through due diligence, they look for contracted revenue in the cloud and emerging tech space,” Werpy said.
Werpy urged partners to not immediately settle for anything.
“The best M&A deals require both parties to stretch. Don’t get singularly focused on one aspect of the deal and be sure to educate yourself on all the options available to you. Multiple parties/bids are where the best deals get done,” he said.
Werpy urged partners to not immediately settle for anything.
“The best M&A deals require both parties to stretch. Don’t get singularly focused on one aspect of the deal and be sure to educate yourself on all the options available to you. Multiple parties/bids are where the best deals get done,” he said.
Channel partner firms need a playbook for making M&A decisions.
Everyone knows that private equity and consolidation have hit the indirect technology sales channel in unprecedent ways this year. Moreover, the technology broker brokerage/agency space has enjoyed more attention than ever.
However, many agents are entering uncharted waters as they field offers from suitors. How do they wade past those shiny multiples to determine the true value of an acquisition?
These three industry experts will chat about agent M&A at the Channel Partners Conference & Expo, Nov. 2: PlanetOne chief operating officer Chris Werpy, Simplicity VoIP founder and CEO Ben Humphreys; and Upstack founder and CEO Chris Trapp. Werpy witnessed multiple private equity transactions in his tenure at Masergy, Humphreys recently sold Comtel to Telarus, and Trapp’s firm has acquired more than a dozen agents in the last year.
The live, in-person Channel Partners Conference & Expo, co-located with the MSP Summit, Nov. 1-4, is almost here. Register now!
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