The Third of Four Installments in our Series: Managed Service Providers
Managed Service Provider companies can be sold for a premium in today’s market.
Managed Service Providers (MSPs), sometimes referred to as IT Service Providers, come in all shapes and sizes. In the “Businesses-for-Sale” marketplace, MSPs are generally considered to have less risk and greater growth potential than other businesses. For those reasons, MSPs tend to fetch premium prices over other types of businesses. Let’s take a look at why that is.
MSPs tend to run on a subscription-based revenue model.
Subscription based revenues tend to be more reliable and predictable than other revenue models.
The cost to capture an MSP customer is high…however…
Once onboard, however, it can be expensive and disruptive for a customer to move on. Generally, there must be an exceptionally good reason for a customer to move to a different provider.
New and improved industry products and services create new sales opportunities on a regular basis.
It is typically much easier to sell new industry products and services to an existing customer than to a new customer.
Synergies abound for strategic buyers.
Strategic buyers of MSP’s, tend to be other MSPs and other technology-based entities. For them 1 + 1 may equal 3.
Synergies for strategic buyers may come in the form of savings generated by integrating administrative services such as payroll and accounting. Additional savings may come in the form of the elimination of redundancies within sales, engineering, and/or other staff functions. Savings can also come as the result of consolidation of supplier relationships and expanded purchasing power. The list goes on. The point is, a strategic buyer will generally pay more than a financial buyer, because, for them, 1 + 1 = something greater than 2.
As an MSP owner, you need to be aware of changing dynamics within the industry and your company. There clearly is consolidation taking place within the industry. Bigger companies are looking to get bigger by buying smaller companies. There is typically an optimum time to sell any business and MSPs are no exception. The challenge is to find that time.
It’s a seller’s market right now. Let’s discuss what 2021 could mean for you.
Brent Engelbrekt is an M&A Advisor with Sunbelt Business Advisors.
Check out one of Brent’s past business deals in the IT sector here: https://www.sunbeltmidwest.com/it-services-firm-sold-by-sunbelt
Sunbelt Midwest is Minnesota’s Largest Seller of Companies. Nationally, Sunbelt sells more companies than any other firm in the world. Founded in 1978, Sunbelt now has 200 offices worldwide helping people buy and sell businesses.