Preparation Crucial for Partner Success with M&A

By Kevin Casey

Channel-relevant M&A activity is as hot as ever and the deals show little sign of cooling off any time soon. Partners themselves don’t necessarily want them to, either: According to one projection, some 70 percent of MSPs hope to be part of a merger or acquisition in the next five years.

That does not mean partners necessarily know what to expect in the process, nor does wanting a deal mean you’ll get one — much less a successful exit. The M&A landscape can be confusing and stressful for owner-operators, especially if they’re navigating it for the first time. That’s compounded by the fact that you still have to run your day-to-day business during the deal process, too.

It doesn’t have to be scary, though. If you prepare properly, M&A can be a viable business strategy for faster growth or a successful exit, says Seth Collins, managing director at M&A advisory firm Martin Wolf. Developing the knowledge necessary to make that happen is the focus of Collins’ presentation, “Timing the Market: How All Companies Can Prepare for M&A Success,” part of the business strategy track, sponsored by Nextiva, April 10, at the Channel Partners Conference & Expo in Las Vegas.

Martin Wolf’s Seth Collins

We caught up with Collins to ask about the current state of M&A — and to get a sneak peek at his upcoming presentation next month in Las Vegas.

Channel Partners: M&A activity was at or near record levels in 2018. How’s 2019 shaping up so far?

Seth Collins: Actual statistics for M&A generally come out on a delayed quarterly basis as large banks and research firms begin compiling and creating data; however, a few trends have appeared. First, 2018 is looking like it ended up one of the largest years on record in terms of deal value. This was driven largely by major deals – deal volume was actually less than in 2017 – and by overperformance in the beginning of the year immediately following 2017 tax reform. While ongoing economic uncertainty may keep us from exceeding the 2018 totals, many of the positive factors driving M&A – including record accessibility of capital, ongoing disruption and technological advancement, and the continued decline in IPOs as potential exits – will keep activity at heightened levels for the foreseeable future.

CP: What are the biggest influences on valuations in the channel right now?

SC: It’s no secret by now that recurring revenue – particularly the type from cloud or managed services – is a differentiating factor in what has become a crowded space. Channel partners have a unique advantage: Their strong customer relationships and broad offerings portfolios give them access to customers and visibility into their pain points and other market opportunities. Acquirers reward companies that offer dependable, sticky services — especially those with strong pipelines and growth histories.

CP: What do channel pros who’ve never been through a M&A transaction before tend not to know about the process?

SC: The ultimate goal of an M&A process is to …

… pick the right partner for your business. That’s not always the biggest or first bidder, and it’s not guaranteed that you’ll find them if you reach out only to the first people that come to mind; instead, it’s critical to think about areas where you complement each other — cliché as it is, when it comes to M&A, 1+1 can equal 3, 2, or less.

Another point is timing. M&A processes have stretched out in recent years, with average time to close increasing. Acquisitions are inherently disruptive to your business — it’s important not to forget that your day job continues unabated.

CP: What do you hope the audience will take away from your presentation?

SC: Before I did this, I was a channel owner-operator myself, so I understand the unique pressures and challenges felt on other side of the stage. I’m hoping that after my presentation, M&A will feel less intimidating and more approachable as a valid business strategy — whether it’s something you were already considering, or a new path forward.