How Microsoft Channel Partners Can Command High Valuations

During the last five years, Microsoft Channel Partners have commanded high valuations due to strong and sustainable business models, as well as a track record of profitability. Most were small mid-market businesses that had to decide to be a buyer or seller.

In today’s rapidly changing Microsoft ecosystem, simple organic growth doesn’t allow for a long-term competitive advantage.

According to Stuart Fenton, who founded QUANTIQ in 2014 as a Microsoft Dynamics 365 partner and sold it to Avanade in November 2021, small partners “have no scale, limited growth, some advanced skills, and limited achievable ambition. They are small, closely held businesses with a narrow cadre of clients.”

Fenton says, “These Microsoft partners have profound, long-term relationships with clients. In many cases, they act as an extension of the client’s staff. While they add value to the client, they do not add value to their own firm. They offer the owner an excellent lifestyle, yet these owners rarely reinvest profits in their firms.

As a result, selling makes the most sense. But how do Microsoft Channel Partners attain a premium value when it’s time to sell?

Recurring revenue:

Top Microsoft Channel Partners typically have a recurring revenue model, which means that they generate revenue from long-term contracts with customers. This is attractive to potential buyers as it provides a predictable and stable revenue stream.

High customer retention rate:

Microsoft Channel Partners with high customer retention rates command a higher valuation because it demonstrates that they have a loyal customer base and a strong reputation in the market.

Strong growth potential:

Microsoft Channel Partners with a clear and achievable growth strategy command a higher valuation because it demonstrates that they have the potential to continue growing and expanding their business.

Microsoft competencies:

Microsoft Channel Partners with Microsoft competencies and certifications command a higher valuation because it demonstrates that they have the technical expertise and knowledge to help their customers effectively use Microsoft products and services.

Strong relationships with Microsoft:

Strong and long-term relationships with Microsoft help command a higher valuation because it demonstrates that they have access to resources and support from Microsoft that can help them to grow and expand their business.

Diversified revenue streams:

Microsoft Channel Partners with multiple revenue streams command a higher valuation because it demonstrates that they have multiple sources of income and are not heavily dependent on a single customer or product.

Strategic fit:

Microsoft Channel Partners that have a strategic fit with the buyers’ business command a higher valuation because it demonstrates that the acquisition will provide synergies and cost savings that will help the buyer achieve their business goals.

Microsoft Cloud Partner Program (MCPP):

As of Oct. 3, the MPN is no longer. In its place is the MCPP, with new expectations on “Solutions Partner” designations. MSFT is focusing more on Azure, Security and Business Applications. Those partners in lockstep with the MCPP will command a higher premium valuation.

If you are interested in learning more about the sale of your Microsoft practice or IT business, contact the official M&A partner of Channel Futures at ITX M&A Marketplace @Channel Futures (itexchangenet.com) or email [email protected].

 This guest blog is part of a Channel Futures sponsorship.