Growing a Managed Service Provider (MSP) can be achieved in two key ways: through organic growth or mergers & acquisitions (M&A).
M&A provides a speedy route to growth. However, many business owners overlook this option due to the complexities involved.
Sierra Pacific Group (SPG), with its extensive experience in the IT industry and a deep understanding of its unique challenges, recently hosted a webinar offering insights on how MSPs can leverage M&A for sustainable success and longevity.
In this first part of our recap, we'll explore:
- Why IT providers should consider growth through M&A
- How acquisitions can reshape labor distribution
- Tips & strategies for the initial stages post-M&A
Join us as we delve into these crucial topics.
WHY IT PROVIDERS SHOULD CONSIDER GROWING VIA M&A
The ability to scale rapidly is crucial to your MSP outpacing its competitors. M&A is one strategy that can put your business on the fast track to successful, substantial growth — if properly prepared for.
Several compelling reasons might drive an IT business to consider M&A:
- Fulfilling external investment promises — If you've attracted outside investment, you need to ensure a return on that investment.
- Current job market demands — Sustained growth is vital to attract and retain top talent.
- The expense of running a successful MSP — Maintaining a prosperous business carries a substantial cost. To remain successful, a significant revenue base is crucial.
Preparing Your Business for M&A
Breaking into M&A as an IT provider can feel intimidating. That's why SPG is here, equipped with expert knowledge and a proven track record to make the transition into M&A less daunting. To venture successfully into M&A, your business should demonstrate:
- A degree of flexibility and tolerance for risk.
- The capacity to sustain profitability and growth during the M&A process.
Our expert, Pete Sholts, VP of Business Strategy at Applied Tech, understands how M&A can revamp your business systems and shares what it takes to reach that transformed state.
He advises first-time M&A companies to:
- Be ready to alter their hiring strategies.
- Develop healthy coping mechanisms to manage the stress of rapid changes.
- Constantly ask, "How can we build a company where every team member successfully navigates this M&A?"
HOW ACQUISITIONS ALTER DIVISION OF LABOR
Adam Bielanski, our Founder & CEO at SPG, is an engineer at heart. He focuses on refining his toolkit while recognizing that several intangible factors drive change and progress.
To balance a robust tactical toolkit with a certain indefinable 'something,' it's critical to cultivate a culture of dedication and hard work. Introducing and implementing this culture within the newly acquired organization can be a significant undertaking.
Smaller MSPs may experience a significant shift in labor division post-acquisition. If your team was small pre-merger, there was likely less labor division. Post-merger, with a larger team, each member will be responsible for a more specialized set of tasks.
This shift is a boon for everyone as it:
- Promotes balance in the workplace.
- Clarifies individual roles.
TIPS & TRICKS FOR THE FIRST STAGES AFTER M&A
After an M&A, it's common to jumpstart automation to streamline the newly expanded operations — a sound instinct.
Ensuring appropriate structure from the outset is vital, particularly in terms of security. Don't give everyone access to everything. Instead, implement a discovery phase where you inventory what you have, review the acquisition's size and endpoints, and identify any additional resources needed for a successful integration. Early identification of potential challenges creates a smoother transition and sets clear expectations.
There are two often overlooked components of post-M&A transitions:
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People — Before focusing on tools and automation, take time to understand the organization's key players and culture. They're the ones who will drive success and are essential in streamlining relationships with your newly acquired clients.
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Difficult workplace discussions — If there are any contentious issues within the team or workplace you're acquiring, address them promptly. Conversations about changes in admin rights or responsibilities might be challenging, but delaying them only makes matters worse.
These elements are interconnected. For example, altering people's titles or restricting their admin rights can breed mistrust from the onset. Therefore, explain why roles or access rules are being refined to suit the new company structure.
As companies grow, individual roles inevitably become more specialized. This change isn't a downgrading, but your team members might not see it that way without your reassurance. So, communication is key in ensuring a smooth and successful M&A transition.
