“Rolling up” MSPs to quickly scale a business is an increasingly popular strategy. However, when both parties in an MSP acquisition sign on the dotted line, the work is far from over. In fact, some of the hardest tasks are just getting started as the focus turns to integrating the staff, processes, and technology stack of two companies.
In some deals, the buyer decides to keep running the acquired company as an autonomous business, opting to make minimal or no changes. It’s the path companies such as Evergreen and New Charter Technologies have chosen—buying multiple smaller players that pretty much remain autonomous. But more often than not, MSP acquisitions involve full integration, or “rollup.”
“That’s the more prevalent model that we see in the MSP space right now,” says Frank DeBenedetto, head of Kaseya’s M&A Concierge program. “You’ll hopefully shed some of the expense that the acquired company has, and you achieve some synergies through money savings, which go right to the bottom line.”
With rollups, the goal is to maximize value by eliminating redundancies in areas such as finance, human resources, marketing, and administration. It also helps negotiate better vendor pricing as a result of higher volumes.
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1 + 1 = 3
One company usually has something the other needs, says Paul Cissel, CEO of Growth Caddie, and M&A Expert in Residence for TMT. “You may have a technician who’s grown their company and is not great at sales, and you have a businessperson who’s great at sales, and they decide to come together,” he says.
Full integration, he says, allows companies to create “a one-plus-one-equals-three model.”
For Mike Fowler, the goal was to drive value by getting bigger. Fowler rolled up several companies into a larger MSP, Iconic IT, before selling to Integris.
“We wanted to scale,” he says. “To do that, we needed systems and processes to support that scalability. We also wanted consistency in our service delivery. We wanted the efficiencies of having the back office, HR, and finance working on one system.”
Mind The Tech Stack
Full integration requires a lot of heavy lifting as principals determine which parts of each company should be trimmed to eliminate redundancies, Cissel says.
There’s also the matter of tech stack. The acquired company may have a different set of tools, such as PSA, RMM, and CRM platforms, which differ from those of the acquirer. The acquirer typically will want to migrate the new company to its tech stack for consistency, efficiency, and cost effectiveness. This takes time and effort, Cissel notes.
Buyers can avoid much of that complexity by targeting companies that use the same technology. This is where the Kaseya M&A Concierge service can make a difference, says DeBenedetto. The service uses a matchmaking platform to introduce MSP buyers to sellers and helps them with post-sale integration.
Recognizing the tech stack is now a main driver in acquisitions, Kaseya works with sellers to get them more entrenched into its platform. DeBendetto says this makes it easier for buyers that already use the Kaseya platform to absorb the sellers.
Don’t Leave Employees And Customers In The Dark
While technology migrations are integral to integration, the human element arguably is more important. Acquisitions can be tough on employees and customers. Let them both know what to expect, experts say.
Cissel advises telling employees how a sale will affect them. Will their roles change? What about their benefits? Also, make sure not to miss payroll once the change occurs. “I’ve seen it happen. It wasn’t on purpose, but because of some snafu,” he notes.
DeBenedetto stresses the importance of presenting the change to employees in a positive light. “If your staff finds out you’re selling and they think that you hid it, they think it’s a negative. It’s no good for me selling the business if two-thirds of the staff leave because they’re so concerned they’re going to lose their jobs,” he says.
Tell employees what the future holds for them post sale, and explain that a bigger company may create more career opportunities, he says.
Early, clear communication with staff, Fowler says, also prevents issues with customers. You don’t want employees telling customers about a sale before you’re ready to do so.
Customers typically don’t like change, and may fear they won’t get the same level of service, says Fowler. So it’s important to address those fears right away. “Communicate with the customers clearly. As soon as your marketing team [is] ready, get it out there and let people know what you are doing.”
