The Best Motives for M&A in Managed Services
In the past few weeks, I’ve written a few times about some of the pitfalls of mergers and acquisitions, not just in managed services, but in general. I still maintain the incredible risks to both buyers and sellers and should you want to know what I said previously, please read my earlier articles.
Today, I would like to turn my attention to a more positive view of M&A and provide some helpful advice on the matter of when and how M&A should integrate into your strategic goals, whether as a buyer or a seller of an MSP practice. Instead of calling this article the best motives, it might be more accurate to call it the more successful reasons behind M&A deals.
M&A for Purposes of Entering MSP Profession
One of the most successful implementations of M&A can be found when a company purchases an MSP practice predominantly to enter the managed services profession. The most common example of this can be found in the office copier sector. For at least a decade office copier companies have been making aggressive inroads to the managed services profession, principally by purchasing MSP companies.
You can do a quick search and find examples of these M&A transactions, and for the most part, they have been successful. The reason these deals work out so well is that the acquiring party can use a vast majority of the MSP they bought.
As previously discussed, one of the reasons M&A deals fall apart post closing is due to the tremendous integration complexities involved. Redundant systems, people, and often competing policies and procedures are just a few of the integrations which have to occur before one MSP can fully and effectively absorb another MSP business. This is, of course, assuming there is an integration strategy at all. In my experience, most M&A deals are driven by the executive and financial leadership and do not often involve service delivery and technical teams at all.
M&A for Strategic Service Expansion
Another common reason for M&A is the expansion of a company’s managed services portfolio. There are some excellent examples of strategic M&A deals, done primarily to add a new managed services product. Acquiring another MSP for a unique service line is not only wise, but it can also be one of the more efficient methods for adding new service capabilities. This is especially true if the new service line would cost a lot of money and resources to develop organically.
Again, integration becomes a factor in M&A success here, but perhaps less so than when integrating two completely redundant and similar MSP organizations.
I stand by my previous claims that M&A deals strictly to grow revenue are risky for both the buyer and seller. Pursuing M&A deals where there is real synergy for both sides significantly raises the chances of M&A success.