What’s Your Worth? Partners, Here's How to Increase the Value of Your Business

By Kelly Teal

Channel M&A activity continues to ramp up, with industry observers predicting even more deals over the next 12 months, even as valuations may drop somewhat.

Just since October, master agency Telarus bought a telecom operations business, Tech Data sold to a private equity firm and ConnectWise snapped up MSP Continuum — and none of that reflects the other M&A not led by channel partners but still impacting them directly.

Richard Tubb

With all this momentum happening, partners have questions about when or whether to consider selling and/or buying. The Channel Evolution Europe session, “Partner Open Mic: Know Your Worth,” will answer those questions. Richard Tubb, an expert consultant, author and speaker in the MSP space who built and sold his MSP business, will lead the panel. Joining him will be:

Tubb wants the audience to come away with clear, practical steps for increasing the value of an IT business. He also wants to provide a firm understanding of what it takes to build a business that acquires others.

With that in mind, Tubb spoke with Channel Partners about some of the key points partners will find valuable prior to attending the event, which takes place 2-3 December in London.

I Want to Sell: Standing Out From the Crowd

There are three top signs that indicate the right time for a partner to consider selling. First, Tubb said, “You have great management accounts, which you can use to demonstrate your value to a potential buyer.”

Second, he added, “you have built recurring revenue to 50% or more of your overall turnover.”

And, finally, “you have experienced great year-on-year growth for the past three years plus.”

Depending on partner type, Tubb offers different ideas for making the business more valuable than competitors.

The advice for resellers will come as no shock, as it reflects the same challenge these hardware-rooted partners have faced for decades: “Focus on adding recurring revenue-based services and solutions,” Tubb said. “If you’ve not already made the move to the managed service model, now is the time to get started.”

For MSPs, Tubb’s advice changes somewhat.

“As the great ice hockey player Wayne Gretsky once said, ‘I skate to where the puck is going to be, not to where it has been,’” Tubb said. “To apply that same wisdom for the IT industry, a good MSP focuses on where the immediate margins are; a great MSP focuses on where the market is going to be.”

For example, he said, every progressive MSP now seeks to help clients with cybersecurity, and building business processes that enable faster, cheaper and better outcomes.

Finally, a consultancy that wants to attract a potential buyer’s attention will want to act on that last bit of advice.

“Shift the focus from working with technology to helping clients build stronger business processes,” Tubb said. “Technology will, of course, be a part of these processes — but lead the conversation with how you can enable clients to do work faster, better and cheaper than before.”

Keep in mind, though, that before taking any steps toward selling, all …

… partner types – resellers, MSPs, consultants, agents and so on – will want to emphasize one key action to increase their valuations: “Placing a focus on generating recurring revenue,” Tubb said. “Buyers value recurring revenue above almost all other forms of revenue.”

That will come as no surprise to partners, especially those who continue to transition from a hardware-centric to a subscription model. Recurring revenue has represented the indirect channel’s Holy Grail for years, with the cloud and other “as a service” technologies bringing partners closer to attaining that coveted prize on a regular basis. Potential buyers will be drawn to those reliable streams of income.

What if I Want to Buy?

A number of partners also will want to understand when they should consider buying to heighten their expertise and reach. Tubb said the top three signs to look for are as follows:

Throughout the process of vetting whether buying another company presents the right next step, partners, especially MSPs, will want to avoid certain missteps Tubb has witnessed during his time in the channel. Above all, he said, “I’d advise MSPs against making an acquisition to increase the client base instead of focusing on strengthening their existing sales system. Every MSP should have a strong sales machine before they consider making an acquisition.”

He acknowledges that can prove difficult, as many MSPs struggle with sales and see a purchase a quick way to access a new client base.

“The reality is, however, that it’s a lot easier and sustainable to focus on building a strong sales process than it is to buy another company,” he said.

Join Tubb and the other experts leading “Partner Open Mic: Know Your Worth” on Tuesday, Dec. 3, at 10:35 a.m.