It is, in my opinion, true that a majority of M&A deals involving MSPs do not turn out well. There are many reasons for this lack of a successful outcome. And yet, there are still a lot of companies desperately trying to pursue M&A deals for various reasons.
Not all M&A deals are wrong to pursue, even if the risk is there. However, understanding why M&A deals do not succeed is important for any company wanting to merge or acquire as part of their managed services growth. I will try and highlight some of the more common reasons MSP M&A deals go wrong and how to fix them.
MSPs are Unique
Each MSP is different, even if they deliver similar services. Most attempts to merge or acquire two MSPs run into trouble when the parties fail to reconcile the often deep differences between the companies. These differences are important and must be addressed in any M&A deal.
Getting a Deal Done Isn't Enough
Too many brokers (and buyers) view a successful M&A transaction as just getting to the closing. Getting to the closing is actually fairly easy to do. The tough part happens after closing when the integration of the two entities needs to occur. Many M&A parties will close a deal and then sit around wondering what to do next.
This is the most important phase of the deal...what happens after the close!
No transition plan
When buying a MSP (regardless of who the buyers is) you must always have an integration plan in place. This is true whether the buyer is or isn't a MSP. I have seen deals where two MSPs combine and the deal falls apart after the closing. I have also witnessed a non-MSP purchase a MSP practice and the true value of the MSP business is never realized. In both scenarios, the parties failed to have an integration plan. As a result, the principals develop resentment, the service capabilities begin to suffer, and ultimately, the customers begin to leave.
Developing an integration strategy is crucial for the success of any MSP M&A deal.
M&A is not a substitute for bad sales
A lot of MSP businesses view M&A as a growth strategy. I have never understood this policy and do not believe it works, either in managed services or in other industries. Wanting to accelerate revenue through a M&A strategy is short sighted, often full of risk, and almost never works beyond 1-2 years (meaning, the short term revenue gains almost always give way to longer term customer attrition and revenue loss).
