Blog by Ben Greenberg, VP of Corporate Development at IT Solutions
If you’re considering exiting your business or are navigating the challenges of growing your MSP, we invite you to connect with Ben (Benjamin.Greenberg@itsolutions-inc.com).
In previous discussions, we’ve explored the evolving dynamics within the MSP marketplace, highlighting the heightened buyer interest and escalating business complexities MSP owners face. Amidst this landscape, the surge in M&A activity within the MSP industry shows no signs of slowing down, signaling a pivotal moment for sellers. As we shift our focus towards sellers, it becomes imperative for them to discern and prioritize the critical considerations when contemplating the exit strategy for their business.
MSP sellers should critically evaluate their own standing and readiness for a transaction. Key questions to ask include:
This analysis supports the development of a cohesive exit strategy — addressing identifiable gaps while leveraging strengths.
Ideally, sellers outline their exit several years out, noting growth and profitability benchmarks to hit year-over-year. This helps produce incremental value gains over time. It’s important to be realistic with yourself; if your business has performed at 12 – 15% EBITDA margins the last 10 years, it’s unlikely next year will be the year you reach > 20%.
Sellers should decide on a timeframe for their potential exit that provides enough runway to continue to grow and enhance the business. Rushing to market without developing a mature MSP could leave value on the table (however, mechanisms like co-investment do help bridge this).
On the other hand, selling too far in the future involves guesswork on future conditions. External factors beyond your control can make your forecasts inaccurate. For instance, losing a few key contributors or large clients could swiftly turn a positive year into a negative year.
A longer-term outlook balances maximizing the current opportunity while retaining flexibility if things change.
With a timeframe determined, sellers will want to set a target valuation and review performance metrics that support that goal. This involves forecasting both operational and financial benchmarks over the period based on reasonable growth assumptions.
Having clear visibility into the progress required to achieve the desired valuation is essential. Without achieving these underlying performance metrics along the way, it will be challenging to hit the valuation you want.
So, sellers should define and map the key metrics that will guide strategic decisions to align with valuation goals. KPIs will differ somewhat across MSPs but typically include:
The key is to identify the critical value drivers that need your focus and consistently track them. This ensures that your decisions align with your exit strategy and the company’s growth potential. Remember, EBITDA is an outcome of profitable growth and, therefore, improves valuation. EBITDA itself does not drive multiples.
The next step entails mapping initiatives against performance indicators to address gaps or opportunities.
Common focal points include:
However, sellers shouldn’t overextend resources. Instead, focus on a strategic expansion that supports sustainable growth after an exit in line with your goals. If an initiative doesn’t align with the key value drivers, you may want to rethink your approach.
Sellers should also outline any preferences associated with deal structure, types of buyers to engage, and any post-transaction role envisioned (if any). This assists in targeting the right prospective partners and can save time down the line. For example, there are a couple of key questions you can ask yourself.
If you plan to leave, you will need to understand the impacts. Do you have skills that will be difficult to replace or institutional knowledge that will hinder future operations? If you have a stake in the future, you need to ensure a smooth transaction to realize the upside. Ensuring a succession plan is in place is always a good idea.
You will also want to evaluate the impact of a sale in isolation. In other words, if you don’t sell, would you reach your financial goals, or will you get there more quickly by being acquired?
MSP owners are wise to continually evaluate their exit readiness. However, making choices focused exclusively on an imminent sale can distract from building sustainable value. Don’t make short-term decisions to prop up your financials at the expense of long-term growth, as most buyers will see right through this.
With proper planning guided by financial and operational milestones, sellers can mitigate surprises and capture the most favorable outcome when the time comes.
Ready to navigate the complexities of exiting your business with confidence? Delve deeper into the critical considerations outlined in our seller’s guide to maximize your company’s worth and ensure a smooth transition. Our team is here to support you every step of the way—connect with Ben Greenberg, VP of Corporate Development at IT Solutions (Benjamin.Greenberg@itsolutions-inc.com), to start the conversation today.
We’ve got answers — fast, clear, and tailored to your needs. Let’s talk tech.
