This article was written by guest contributor Reed Warren, CEO of iTValuations, which offers business valuation services as well as sell-side and buy-side advisory services.
Culture is key—possibly even more so when you’re looking to acquire a new MSP.
If your cultures are misaligned, it’s a recipe for M&A disaster, even if your strategies and financials match up. Here’s why cultural synergy is so essential, and how to catch a glimpse of your potential acquisition’s real cultural values.
What Culture Is and Isn’t—and Why it Matters
As Peter Drucker says, “Culture eats strategy for breakfast.” And although business leaders talk about how vital culture is, and how it can fuel your business, few leaders define what culture really is—or how to create one.
Culture isn’t your branding; it’s your reality. Although culture can seem like an abstract concept, there are a few different elements that comprise a great culture.
First, your values. What values do you live by? What values do you consider when you hire, fire, and promote people? Second, what kind of people do you bring into your organization, and how do you treat them once they get there? Finally, how do things really get done in your business? There’s a big difference between a collaborative decision-making environment, and one where every decision is made by one person.
Culture always comes from leadership, intentionally or not. Even if you haven’t intentionally created a culture, your business already has one—and the way you, as the leader, behave sets the tone.
Finding the Right Cultural Fit with M&A
When looking for the right company to acquire, plenty of MSPs consider strategies and financials to see if the company would be a good fit. But it’s critical to also consider the cultural fit, to ensure a great partnership.
When testing if a potential acquisition will be a good cultural fit, start with your most essential values. For example, if treating your clients and employees well is crucial to your business, dig into how the firm you’re looking to acquire treats their clients and employees.
To gauge this, you can examine their eNPS or CSAT scores to see their employee and customer satisfaction levels. Some red flags include lack of referrals, client churn, and high employee turnover.
You’re likely not going to find a carbon-copy culture with the exact same core values, but there shouldn’t be a huge cultural gap between your MSP and the company you’re acquiring. The smaller the gap, the more likely the acquisition or merger will succeed. If you can get the culture to click, you’ve got a much better chance of the acquisition working well.
The Employee Question Is a Key Indicator
When determining if a potential seller is the right fit for your MSP, there are a few things to consider. First, examine the kinds of questions the CEO is asking. Are they only talking about the money and the new car they’re about to buy, or are they discussing how they can compensate and take care of their long-term employees? Neither perspective is wrong, but it is a critical indicator of their values. If you care deeply about your employees, your ideal acquisition is someone who also feels that way.
The vast majority of MSPs say they want their employees taken care of after the sale. But the real meat is in the follow-up question: What does taking care of your employees look like for you? This is why M&A can’t be a rushed process; you need the time to cut through the fluff, ask follow-up questions, and get to the heart of their business.
Your Business Trajectory Depends on Getting M&A Right
In summary, don’t be afraid to be selective. It’s exciting to find an acquisition that looks promising, or someone who wants to buy your MSP, but an acquisition can change the entire trajectory of your business. It’s a very serious business decision that will have a lot of ramifications down the road.
For more on M&A, check out this advice from these MSPs on how to prevent a cultural mismatch in M&A.
