How do you ensure a successful M&A transaction? This question is not unique to managed services, although our profession seems immune to learning the truths of history when it comes to why M&A deals succeed and why most do not. We've talked about M&A in the managed services profession for many years, only to see the same failed methods being attempted over and over again.
Yes, there have been a few successful M&A transactions in our space, and these should be examined and copied. But, the vast majority of deals have less than optimal outcomes and are easily avoidable. I want to explore one of the most natural methods you can use to avoid common M&A pitfalls.
Money is Not The Key Ingredient for M&A Success
Before I get a ton of emails on this topic, you do need capital to be in the M&A business. We do not live in a world where you can buy a valuable asset with no money down. The real estate financial crisis of 2008-2009 should have made that abundantly clear. My point is that money may fuel a lot of M&A activity, but it does not guarantee a successful outcome.
Perhaps that also part of the problem. M&A brokers and professionals tend to count their success in numbers of closed deals. Getting to the closing date and executing a purchase agreement is the goal for these people.
We Need a Different M&A Success Metric
For me, I count the longevity of the transaction, accounted for in several ways, but indeed the length of the deal post-closing, the longterm success of the surviving entity and overall financial performance of the company are great metrics for determining M&A success. You cannot determine M&A success based on how many failed M&A deals you've put together; this is not a metric for success.
Integration is Fundamental to M&A Success (Pay attention to this section!!!!)
When I look at an autopsy of M&A deals (even those deemed successful because they closed), a lack of integration is typically the cause. What this means is you can still have a deal that reached a closing agreement, and may even have survived for a period of time afterwards, but ultimately fails because there was no integration strategy or no integration success.
Integration strategy comes first. You need a plan for how to incorporate an acquisition into your MSP business. An integration strategy requires a detailed analysis of your MSP practice first (yes you heard me correctly) before you can even contemplate acquiring another MSP business.
