Written by: Charles Weaver – Co-Founder, MSPAlliance
There are a lot of private and institutional investors interested in the managed services profession right now. MSPs are reporting a lot of inbound activity from investors, especially around security. Proper alignment between MSP owners and investors is crucial for creating synergies and ultimately getting a deal beneficial to both parties.
Most investors do not have a very good handle on the managed services profession and are merely looking for opportunistic deals. Opportunistic investors are perfectly fine, as long as you know what to expect. The following guidelines are useful both for investors and MSPs alike. Getting both sides to align would be a positive step forward and in the right direction for our profession.
What Do Investors Want?
It would be too simplistic to say all investors want to earn money, but they do. Investors typically want to either a) replace the ownership team and take over management of the MSP or b) inject the MSP with capital and retain the current management structure. One of the very first things you should do in your discussions is to determine what the ultimate goal is.
Before you get too far in your discussions, knowing whether the investors want management out or whether management is vital to the ongoing success of the deal is worth knowing.
Long vs. Short Term Goals
As previously discussed, some investors may want to keep your existing management team in place, and others may want a clean break. Beyond whether the leadership stays or goes, investors also have different reasons for investing in an MSP.
Some investors want to do some M&A work to accelerate growth and ultimately sell the company off. Other investment teams prefer traditional organic growth and will be long term investors, seeking some liquidity event beyond a five-year horizon.
Speak the Investor’s Language
In either instance, all investors want to eventually get their money back and see a return on their investment. You must understand their motives and equip yourself with the understanding that allows you to communicate with investors in a way that will maximize your value to them.
Even if investors do not fully understand managed services, having a well thought out strategy will be something all investors understand. MSPs need to be able to convince an investment team that the MSP practice can become a valuable resource for the investment group. Why will buying or investing in your MSP make them money? If you can answer that question, you can speak to investors.
MSPs need to understand the mindset of investment groups to appreciate the mind of the investor fully and capitalize on these opportunities.