The Right Way To Do a MSP Roll Up

M&A Roll Up Basics

Let’s look at how most people look at roll ups. I believe, based on countless discussions with MSP owners, executives, and investors, that roll ups are viewed as a quick and easy path towards market consolidation (my views on MSP consolidation are also well documented). Take a pile of money, find 10-50 MSP businesses, buy them, merge them, and voila, you have a MSP juggernaut. Yeah, right.

Here’s a quick summary of why those roll up strategies almost never work:

• Speed: too many deals too fast and no time to properly integrate
• Lack of integration plan: with no strategy to integrate 2 entities, customer and employee attrition is a high likelihood
• Lack of trust: sellers who care about their employees and customers are naturally fearful of M&A roll ups
• No Accretive Value: due to the speed of the deals and lack of integration strategy, roll ups often never produce accretive value to the company (meaning, each new acquisition does NOT necessarily add more value)

There are more items to this list, but I think you get the picture. Roll ups are risky, expensive, and historically challenging to pull off successfully. However, that does not mean that strategic M&A does not have a role to play in the growth of your MSP practice. Let’s take a closer look.

Strategic M&A

The MSPs with the fastest growth trajectories have relied not on roll ups but on strategic acquisitions and mergers in order to achieve significant results. This strategy is the exact opposite of a roll up as it relies on patience, organic growth, and a slick process for integration. Knowing what you want to buy and how you plan to use it is something most MSPs never consider (other than they want to grow).

Growth by acquisition is not a substitute for organic growth. Meaning, if you aren’t growing naturally, don’t think M&A is going to get you to the finish line any faster. Your lack of organic growth is likely an indicator that you have a leak someplace in your service process. Adding more fuel to the engine is just going to result in a faster leak.

The best M&A strategies emphasize the growth of a MSP into the following areas:

1. Geography
2. Adding new service/market capabilities
3. Expanding existing service/market verticals

Good deals are carefully constructed, artfully executed, and designed for maximum value. This means the buyer must use the M&A deal to achieve a significant result; this is in direct opposition to many small deals, which sounds easier but doesn’t cost less, take less time, or reduce your risk at all.

So, as we enter this latest phase of significant managed services growth, keep these ideas in mind as you create your growth strategy.