What You Should Know About Buying or Selling a Managed IT Services Business

When buying or selling an MSP, varying circumstances may be involved.

Conditions may require that an MSP streamline its operations, liquidate assets due to a force majeure or transfer ownership due to some unforeseen occurrence. They may also signal that it’s time to expand into a new geography, seize a one-time opportunity or enter a new market adjacency.

Regardless of the underlying motivations, giving more value to your IT services’ entity or MSP business requires you to consider many different variables, including your accounting models or applications; tools or custom software; trademarks, patents, and/or other assets that increase the value of your company and thus make it more enticing to a prospective buyer, not to mention current clients.

Here are some things to consider:

Value Over Cost

It is a perennial economic axiom that value supersedes cost for both buyers and clients. Adding inherent value to your MSP prior to selling, or looking to add value to a newly acquired MSP, is one of the key principles involved in maximizing your monthly recurring revenue (MRR) stream.

The attractiveness of built-in, value-added services will take you especially far in the information technology business, in particular, especially when you can provide such ancillary services as:

But doing a deal the right way all depends on your specific service structure. Having those extras may not appeal to those who are only interested in a stripped-down version of your core deliverables.

Many customers may not need or want all those bells and whistles, in other words. But that’s not to say your company and services won’t have intrinsic value for them or for other prospective buyers. You have to base how you sell your company on what the highest or best bidder wants.

IT Services as Good Business Strategy

Valuation is all about your bottom-line profitability over your top-line revenue. If you are spending more per month on overhead or keeping non-performing or non-repeating revenue streams going (and hence narrowing your profit margins) your valuation will suffer.

Myles Keough of solutions provider Spade Technology makes the point that having a traditional data center (TDC) may appeal to one type of client looking for that structure or set-up, but not everyone. Another buyer, for example, may find more value in a non-traditional or custom data center.

You can, of course, configure an IT services business in an almost unimaginable number of ways. But to get maximum value for yours, make it universally appealing in service profile and business structure. That way you will retain maximum value for the greatest number of potential buyers possible.

Why a Well-Managed MSP Is Your Best Asset

A well-managed MSP business—especially one that can quickly provide accounting numbers for the last two-to-three years on-demand—tends to stand out.

When asked for their finances, its owners say, “Here they are,” instead of, “We’ll see what we can put together for you.”

When it comes to on-demand accountability among prospective buyers, “You don't want to be the person in the group that doesn’t have their numbers,” says Keough. It’s about being streamlined, nailing down your MRR to around 70 percent of total profit margin, and freeing yourself from extraneous costs, he adds.

As for non-performing clients or employees, they can be dead weight around your neck, Keough and I agree. Cutting loose 10 percent of both non-performing clients and employees annually is a good “Jack Welch” rule of thumb, I believe. In the case of an MSP acquisition, you are dealing with a “mass migration” of assets and personnel which presents a good time to clean house, maximize MRR and bundle services into value-added revenue streams.

“I’d rather have $80,000 of MRR with a 20 percent net than $100,000 of MRR with a 5 percent net,” adds Keough.

Eliminate Profit-Loss With a Good IT Service Provider

In IT services, productive business management can dovetail with superior information technology models and maximize profitability.

Spade Technology can show you how to get your MRR up to $100,000 and optimize your profit potential.

If you are interested in selling your MSP, the experts at www.SellYourMSP.com can help you liquidate assets successfully. And if you need help with structuring a marketing solution focused on merger or acquisition, well you can always call me.

Here’s to increasing value!

The discussion above is showcased in a recent webinar conducted by Stuart Crawford and Myles Keough.