5 Tips for MSPs To Take To Assure A Successful M&A
By Mike Williams, Logically
Despite a global pandemic, M&A deals between MSPs continue to remain strong. Recent years have seen an abundance of mergers in the space and demands from employees to work from home have only bolstered the need for the services that MSPs can provide. Landing the deal is the easy part, but now that you’ve caught the fish, what are you going to do with it?
Smaller MSPs often take the approach that they will need to “suffer” during their initial year of integration. They believe that undergoing a merger justifies lowering expectations for financial performance. However, a well-executed integration plan can accelerate the process and allow you to keep your P&L strong by keeping employees focused on work that leads to profit.
Logically is one of the fastest-growing MSPs in the nation. We are currently integrating three MSPs and plan to close three more acquisitions before the end of 2020. Our extensive M&A experience has taught us that there are five necessary steps your MSP should take to ensure a successful integration.
- Establish an Integration Management Office (IMO)
Successful integration can eat up resources. If you want to maintain productivity and profitability, don’t expect your employees to do the work of integration on top of their regular duties. Set up a special Integration Management Office (IMO) composed of dedicated internal resources or an outside team.
Think of each acquisition as an independent project. This means that for each integration you will need a project manager, a technical expert, and at least one general administrative expert. The project manager in this case is the IMO lead. Once you land the deal it will be their responsibility to integrate the business without disrupting customers, overburdening staff, or impacting P&L.
If you have acquired a company to increase your enterprise value to sell to another entity, these entities will most likely view your IMO investments as an “addback”. As a one-time project, it will not count against your P&L. However, if you use your existing resources to handle the integration yourself and lose focus on growing your business, your enterprise value will suffer.
- Consult the Experts
If you plan to acquire multiple companies in a short time, consider bringing an expert in M&A integration on board. This is especially true if this is your first integration. These experts can help you avoid the hurdles and steep learning curve that come with attempting to integrate on your own. Though you may initially pay more upfront, you can apply what you learn from these specialists to future mergers. Using an expert usually leads to a higher return on investment in the long run.
- Create a Plan Before Closing
The IMO lead, and the executive they report to, should work with the deal team pre-close to create an outline of how integration will unfold. The Integration Management Office can begin looking through the due diligence data to identify synergies on the teams while legal is ironing out the purchase agreement. The IMO should also begin mapping out how the new staff will align in the organizational structure. Planning about how product offerings will be integrated, aligning accounting processes, onboarding staff, as well as an evaluation of the add on the company’s brand equity, are also integration tasks to consider pre-closing.
With a plan in mind, the IMO will be able to hit the ground running immediately after the sale. The faster you integrate, the better. Plan for successful integration to take three to eighteen months. Though eighteen months may be longer than many companies expect, the timing of integration depends on the nature of the deal. A purchase agreement that includes an earnout provision tied to location P&L or gross margin will likely have a slower integration as selling shareholders will demand to maintain more control to ensure they maximize the value of their earnout.
- Use an Integration Playbook
Just as a football coach relies on a book of plays to guide his team to victory, your MSP business should use an integration playbook to carry out your strategy. This document lays out the goals, activities, responsibilities, and roles of your employees as well as any target timelines for their completion. If you don’t have experience with integrations, you can purchase a ready-made playbook and customize it to fit the needs of your business. Better yet if you choose to engage an outside expert, take advantage of their experience to optimize your playbook. Have your IMO lead collaborate with the expert so that they can reproduce their actions in future integrations and strengthen your overall integrations.
- Communicate With Your Team
For the first month, create a communication plan detailing all the meetings you will have - which clients you will meet in person and which clients you will call on the phone. Your CEO, as well as the CEO of the add-on company, should present the new vision for the company on day one. Make sure to follow up this presentation with regular HR meetings. Don’t be afraid to over-communicate with people, giving them materials, reviewing these materials with them, and most of all, answering their questions openly and transparently.
In Conclusion
MSPs are service companies, and the heart and soul of service companies are people. An integration is successful if you can retain key staff, keep your clients, and grow revenue. The overall goal is to create the mathematical equation “1+1 = 3”. When you add the partners together, the result should be worth more than what either company could accomplish on their own, and the successful use of an IMO will support you in that exciting process.
About The Author
Mike Williams is Chief Strategy Officer at Logically.