Selling your MSP: Strategic vs. Financial Buyers

Selling your MSP is a complex process requiring careful consideration of multiple factors, including the type of buyer that’s right for your practice. The two most common types of buyers for MSPs are strategic buyers and private equity firms (otherwise known as financial buyers). While both offer unique advantages, there are key differences that should be considered when deciding which type to select.

STRATEGIC BUYERS

A strategic buyer acquires MSPs with the intention of achieving long-term business goals beyond short-term financial returns. This type of buyer is typically a larger company looking to expand its market share, diversify its product offerings, or increase its operational efficiencies through the acquisition of complementary businesses.

Think: Instagram being acquired by Facebook or Exact Target being acquired by Salesforce.

Strategic buyers often have a specific set of criteria they use to evaluate potential MSP targets. They may look for an MSP having a strong market position, unique intellectual property, or long-standing customer relationships. Additionally, they may target MSPs operating in related industries or have similar business models to their own.

Unlike financial buyers, who are primarily interested in maximizing returns for an exit within 3-5 years, strategic buyers are willing to pay a premium for MSPs that fit their strategic objectives. They may also be more willing to work with existing management teams and retain key employees to maintain continuity and ensure a smooth transition.

Overall, strategic buyers are a valuable force in the M&A landscape, as they bring a long-term perspective and a focus on creating value.

Here are some advantages and disadvantages of selling your MSP to a strategic buyer:

Advantages

1. Higher valuations: Strategic buyers often place a higher transaction value on an MSP than private equity firms. This is because strategic buyers are willing to pay a premium to gain access to new technology, product, or customer base.

2. Potential for synergies: Strategic buyers focus on synergies with your MSP by combining it with their existing operations. This can lead to additional value creation for both companies.

3. Longer-term partnership: Strategic buyers are often looking for a long-term partnership, which can be beneficial if you are looking for a buyer who is willing to invest in the long-term success of your business.

Disadvantages

1. Less control: When selling your MSP to a strategic buyer, you may have less control over the future direction of your business. Strategic buyers may want to integrate your business into their existing operations, which can result in significant changes to your business.

2. Longer sales process: Selling your MSP to a strategic buyer can be a longer process than selling to a private equity firm. This is because strategic buyers may take more time to evaluate your business and negotiate a deal.

3. Cultural differences: There may be cultural differences between your MSP and the strategic buyer. This can make it more difficult to integrate your business into the buyer's existing operations.

PRIVATE EQUITY (financial buyers)

Financial buyers are investors who acquire companies with the intention of generating a return on their investment through financial means, such as increasing the company's profitability, selling it at a higher valuation, or taking it public through an initial public offering (IPO). Private equity firms are a specific type of financial buyer that typically raise capital from institutional investors, such as pension funds and endowments, and high net worth individuals to acquire and manage companies.

Read the advantages and disadvantages associated with Private Equity buyers at Selling your MSP: Strategic vs. Financial Buyers | LinkedIn.