Managed service providers have flooded me with email in recent days. Dozens of MSPs wanted more information about Sparxent, a start-up company in Salt Lake City, Utah, that’s acquiring MSPs and solutions providers across the globe.
But the notes got me thinking: If you’re so eager to sell, chances are Sparxent and other buyers won’t want to acquire you. Here’s why.
When it comes to mergers and acquisitions in the IT channel, there always seem to be far too many sellers and too few buyers. Fact is, there are thousands of VARs who are struggling with shrinking margins and they’re stuck in a “product” or “break-fix” mindset. Many of those folks would gladly sell out to the first buyer who came along with a decent offer. But in most cases, that would-be buyer doesn’t exist.
Sparxent, for instance, doesn’t want to save struggling VARs and MSPs. The company wants to buy thriving organizations with executives who want to keep skin in the game rather than fully cash out. The idea is to acquire multiple puzzle pieces across the globe, and then snap them together into a stronger whole.
I’m not saying Sparxent’s strategy will work. We all remember failed digital integrator and Web integrator roll-ups, including USweb and MarchFirst. But Sparxent isn’t out to buy dozens of companies — just a few well-run MSPs and integrators with revenues between $5 million and $20 million. Translation: most VARs are far smaller and won’t appear on Sparxent’s takeover radar.
Before you worry about selling a business, spend more time building a strong brand, develop deep IT specializations and get your customers under recurring revenue contracts. At that point, you won’t need to find a buyer. At some point, they’ll seek you out.
Posted In: Mergers and Acquisitions
Tags: Managed Service Provider | Managed Services | Mergers and Acquisitions | MSP | Sparxent
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In the case of Sparxent, I can’t imagine selling out to a company where my financial destiny depends on peer MSPs from across the globe whom I’ve never met.
Joe,
This is interesting. Many of the past posts have eluded to great margins and growth in the MSP industry, yet you are flooded with notes regarding “selling”. If you love what you do and believe in Managed Services, then why sell out? If you are just looking to sell, then follow the advice of many before and build a company to sell.
But I guess what is interesting is the overwhelming response you got since it seems there would be more loyalty to the industry. Maybe it’s just the business cycle and the weeding out of those that are in it for the long haul and those that aren’t.
It reminds me so vividly of the Cliff Bar story where the owner was presented a very lucrative offer for his company and in the end he stayed. He was committed and believed in what it stood for.
All in all, what does this really say about the industry?
Shane: Ironically, my business partner and I were discussing the Clif Bar story a few days ago — and its 5 business aspirations. Visit this page on Wikipedia to learn why/how one of Clif Bar’s founders turned down a big offer to sell the company.
Yes, we are in a business cycle where there are a lot of “pretender” MSPs in the industry. You know the type. They’re resellers who hang out at MSP events, and nod their heads in agreement when an event host asks who in the room has made the move to managed services.
There are some great MSP success stories out in the market. But we’re also heading for a shakeout that will eliminate the pretenders in the next 12 to 18 months max.
You right on this Joe. Those who think they are going to skin a fat hog with this model are in it for the wrong reasons. Whiles it’s true that any business endeavor should be built and maintained as if it was going to to be sold tomorrow, it’s that very mindset that makes that same business so valuable to keep.
There is far more value in building a practice over 5, 10 or even 15 years and skimming the cream (profit) for that same period of time, then selling part or all of it off to either those who helped you build it (your current employees) or as a last resort to a roll-up like Sparxent.
Either way you win but all good things take time; ther are no shortcuts.
Please note that I’m not questioning Sparxent’s strategy. They’re trying to build an EDS-type company for the midmarket. Interesting, to be sure.
But I do worry when so many MSPs express interest in cashing out of this market. I guess it’s similar to the early days of the PC market. Everyone raced for the land grab. But only a few folks (Michael Dell, Steve Jobs, etc.) stuck around for the real long haul to build something of long-term value.
Of course, sticking around may not always be smart because you never know when somebody is going disrupt your market. There’s an old saying business: The first offer you get is usually the best offer you’ll receive. For MSPs, that means it’s tempting to sell when someone expresses interest…
Talk about leaving a party early…The best is yet to come in my opinion.
I think it is important to make sure you are spending your capital wisely and not on assets that lose value over time.
Quote of the Day: “One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man.” – Elbert Hubbard, from The Roycroft Dictionary and Book of Epigrams, 1923.
I’m with Todd…how can you leave the party before the cake is served? Besides, it’s an interesting profession that changes faster than our New England weather…
I suspect that those in a rush to the exit door are MSPs in name only, who have never truly made the committment to becoming a true MSP.
Delivering a service that provides true value to the client at a fair price is gratifying, and it’s what most MSPs do..
Jim Van
http://www.logicomm-inc.com
It’s great that many MSPs want to hold onto their businesses rather than sell, but let’s not forget: Your entire strategy and thought process could potentially change if somebody presented you with a once-in-a-lifetime offer to buy your company at a very high multiple.