Whether you are planning an exit or its not yet something you have considered, as an MSP owner or manager you should always be looking at ways to improve the business, processes and add value where you can.
At MSP.blog we advise MSP owners to ‘start, with the end in mind’ – Whether that’s a growth goal, exit plan or a milestone… What does a good outcome look like for you?
For many an exit at some point in the future is the dream, and for others owning an MSP that can operate without them in the business is the dream. Both goals are fine, but you should always have at the forefront of your mind ‘How can I increase the value of my MSP?’.
Personal circumstances, climates, industries, competition, and goals can change over time, and you want to ensure your in a position to gain as much value out of your business as possible when the time comes.
If you don’t come to exit, don’t worry – All the effort you put towards an exit plan and adding value to your business will make your business a better environment for staff, improve processes, removes you from the day-to-day firefighting which all leads to happy customers (and better growth).
There are many areas of a business that can be worked on to add value, but below are the key areas we have seen work for MSP’s in the sector that have had successful outcomes:
A strong tech-stack can not only add value to your MSP, but it will increase the interest from potential bidders when you go to market. Acquirers see a strong tech stack as an asset that show’s a well-run business, and in a lot of cases the tech-stack or parts of it then get used within the acquirers business/group.
As stated in the famous business book ‘The E-myth’, you need to be in a position that you’re working ON the business and NOT in it. There should be a team around you that can operate when you’re not around – This is a key area that potential acquirers will be looking for.
When reviewing a deal, potential acquirers review risks and how they can mitigate those risks. One of the main risks to a potential acquirer is having too much of the revenue sat with 1 or a small number of clients. This means that if this client(s) moves on, a lot of the revenue is lost. If you have a lot of your revenue sat within a small number of customers, you need to work to dilute this across your business otherwise this will be factored into the deal and will negatively affect the value.
Recurring revenue is king
One of the main areas investors look for within an MSP business is the fact a lot of them are based on fixed monthly recurring revenue (MRR). Aim to get as much business as possible onto MRR contracts, often acquirers looking for a true MSP won’t be interested if MRR is below 30-50% of your total revenue.
Customer agreement lengths
Acquirers and investors put a lot a value on long term contracts as it guarantees a level of return, so you should focus on ensuring your customers are in 24-36 month contracts.
Team (Tech, Sales and Management) / Staff retention
A strong management team around you, happy staff and high retention levels will all help when going through the M&A process.
Documentation & Processes
Documentation & processes are key to any business, but even more so if you are looking to exit. The processes will allow potential buyers to understand your business, what’s involved and more importantly will give them a road map for how to run systems once they take over.
A great way to show the market that you are well run, follow processes and externally audited is to achieve industry standards and accreditations. Ones to note are ISO 9001 Quality, ISO 27001 Information Security, Cyber Essentials, Microsoft Partner, and other vendor accreditations.
Strategic Growth opportunities – USP or Niche
Having a USP (unique selling proposition) or niche can increase interest from strategic buyers and drive up offers. For example, being the main MSP for a certain area or an industry could be attractive to a competitor wanting to get into that space – An easier route for them may be to acquire.
Having a strong healthy pipeline shows potential buyers that there is growth potential within the business and often supports the valuation.
Having clean, up to date and well documented accounts is a must – Any holes here and the acquirer will potentially knock the value.
Everyone wants happy customers – Find ways to externally show you have raving fans by running CSTAT surveys and have up to date case studies and testimonials.