MSP M&A corp interview

MSP Investor Interview – David Papp (MSP Corp)

David Papp – CTO – MSP Corp

Who are you and what is your job?

Chief Technology Officer – Involved in a variety of activities as part of the head office team for MSP Corp helping oversee the operations & technical aspects of all our subsidiaries throughout Canada, involved in M&A due diligence activities, integration & merger projects, marketing & branding, and operations

What is your business and what do you do within the MSP space?  

MSP Corp acquires and empowers Managed Service Providers

Can you explain a little about the business?

Largest network of award-winning managed service providers in Canada targeting the underserved SMB market.

Multi-pronged growth roadmap driven by a repeatable M&A playbook, an effective GTM strategy, and from synergies and cross-selling of products and services.

Proven management team with a track record of success, significant experience scaling IT service providers across Canada and a reputation as an acquirer of choice in the fragmented MSP market

How do you see M&A activity within the MSP industry right now?

Very aggressive

What advice would you give to MSP owners that are looking to plan for an exit?

Plan for the exit, whether or not they proceed with it.  Having 2-3 years of preparation before an exit can yield much more favourable results than proceeding with little notice.

Empower your staff so your business can operate without out.

Ensure your staff and clients have good retention, low churn

Ensure no single client represents a significant portion of your revenue

How can MSP owners start adding value to their MSP now, to maximise their sale value?

Review all your revenues and expenses, maximize your MRR, and strengthen your EBITDA

How can your service support MSP owners building their MSP, that will ultimately support an exit?

We have strong synergies within the family between all of our subsidiaries. We also have mentoring and peer group opportunities. And we have strong national group buying power.

Can you tell us a little about your acquisitions?

We have been involved in many MSP acquisitions as that is what our company does.

Before any deals are finalized, they all go through an extensive Quality of Earnings audit. You will want to have all of your financials in order and going back a few years. 

We acquire the entire business with payments typically scheduled over an earnout period tied to an agreed EBITDA value.

Valuation multiples depend on the quality of the revenue and size of the business.

What was the main thing you learned about M&A going through the process?

Being organized helps speed up the due diligence phase. Some people breeze through it and others struggle.  You will need to provide a lot of information to our audit team.

Knowing what you know today about the industry, what would you tell yourself 10 years ago?

Focus on strong and good quality MRR. 

Have good language in your client agreements that facilitates annual price increases (even just to cover basic inflation), onboarding and offboarding fees, early termination penalties, and other goodies.  We’ve seen too many MSPs with antiquated agreements that were never updated and not properly educating their clients.  Your costs of doing business increase especially as we add better stack components (e.g. cybersecurity) and provide raises for staff retention and positive morale. 

Is there any advice or things to watch out for that you would like to share with fellow MSP / Business owners?

Be careful who you exit to.  There are many different types of investors and they each have different outcomes after the deal is done.

What are you up to now and how can people find out more?

We are still growing and acquiring more MSPs.

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