The Ideal MSP Exit Plan
Insights from Christopher Vollmond-Carstens at NTIVA
Mergers and acquisitions (M&A) are a hot topic at all MSP events this year, and business owners in the space should begin preparing their MSP exit plan as early as possible, especially if they are looking to exit strategically to an organization like NTIVA.
Christopher Vollmond-Carstens, the M&A Director for NTIVA, one of the I.T. channel’s most prominent MSP M&A executives, sat down with Carrie Richardson to share his thoughts on exit strategy for MSPs, emphasizing the importance of preparation and alignment.
Here are the key takeaways from his recent discussion on the “What’s Important Now?” podcast, hosted by Carrie Richardson, and provides actionable insights for MSPs aiming to craft a robust exit plan.
Understanding NTIVA’s M&A Strategy
NTIVA’s journey from organic growth to aggressive acquisition started in 2016, when founder Stephen Friedkin decided to bring in outside capital to accelerate the company’s expansion. This move allowed NTIVA to grow beyond its original DC market, acquiring 15 businesses and establishing a presence in over ten markets across the U.S.
Key Factors Making NTIVA an Attractive Partner
1. Legacy and Values Alignment: NTIVA’s mission is centered around building a legacy-defining brand characterized by strong client and employee retention. Their core values—care, ownership, responsiveness, and excellence—highlight their people-first approach.
2. Attractive Choice for Stakeholders: NTIVA aims to be the best place for talent, clients, vendors, and investors. This commitment to being the gold standard in the industry is a significant draw for potential sellers.
3. Extraordinary Financial Results: NTIVA’s focus on delivering better-than-ordinary returns for all stakeholders, including employees and vendors, makes it a financially attractive option for MSPs looking to exit.
Thinking about your own MSP Exit Strategy? Here are some tips from NTIVA on how to make sure you’ll get the best valuation when you’re ready to sell.
Preparing Your MSP for Acquisition
Cultural and Operational Readiness
Vollmond-Carstens emphasizes the importance of cultural alignment between the acquiring and the acquired companies. A cultural mismatch can be a deal-breaker, regardless of financial metrics.
Additionally, operational maturity is crucial. This includes having a clear organizational structure, repeatable reporting processes, and a capable leadership team that can manage client relationships and drive organic growth without the owner’s constant involvement.
Key Financial Metrics
For NTIVA, financial criteria are critical. They look for businesses with:
- A minimum EBITDA of $1 million in existing markets and $2-3 million in new markets.
- A high percentage of recurring revenue (60-70%+).
- Diversified client mix to avoid substantial client concentration.
- Strong employee retention and operational maturity.
- Constructive contract terms and pricing structures.
Steps to Improve Valuation for Exit
If an MSP has a 12-month window to improve its valuation, Vollmond-Carstens suggests focusing on:
- Strengthening the leadership and management team.
- Driving new client opportunities and ensuring high client retention.
- Maintaining employee retention to avoid red flags during evaluation.
For those with a longer horizon, such as 24 months or more, the focus should be on improving contract terms, enhancing pricing or margin performance, and preparing the team for the transition.
Enter Fox and Crow Group:
For MSPs seeking to optimize their valuation and prepare for a successful exit, partnering with a consultancy like Fox and Crow Group can be immensely beneficial. Fox and Crow Group specializes in helping MSP business owners address and overcome the challenges that can hinder a successful sale. Over an 18 to 24-month period, we work closely with MSPs to:
- Enhance Operational Maturity: Implementing best practices in organizational structure, reporting, and management to ensure the business runs smoothly without the owner’s constant involvement.
- Improve Financial Metrics: Optimizing contract terms, pricing strategies, and revenue models to boost profitability and recurring revenue.
- Strengthen Leadership and Team Dynamics: Developing a robust leadership team capable of driving growth and managing client relationships independently.
- Increase Client and Employee Retention: Implementing strategies to retain clients and employees, minimizing churn and ensuring a stable, loyal customer base and workforce.
By leveraging the expertise of Fox and Crow Group, MSPs can significantly improve their business’s attractiveness to potential buyers, ensuring they achieve the best possible valuation when the time comes to sell.
The M&A Process Timeline
The M&A process can take anywhere from two to three years from the initial conversation to closing the transaction. During this period, it’s crucial to build rapport and trust, ensuring the selling business meets NTIVA’s criteria.
Once a letter of intent is in place, the transaction pace quickens, typically closing within 60-90 days.
Enhancing Your MSP’s Appeal
Certain factors can significantly boost your MSP’s appeal and valuation:
- Specialization in Industry Verticals: Demonstrating expertise in specific industries, such as healthcare or finance, can attract higher multiples.
- Strong Sales Organization: An independent and efficient sales organization can drive organic growth, making your MSP more attractive to buyers like NTIVA.
Final Thoughts
Christopher Vollmond-Carstens’ insights underscore the importance of preparation and alignment in crafting an MSP exit plan.
By focusing on cultural fit, operational maturity, and key financial metrics, MSPs can position themselves as attractive acquisition targets. Additionally, understanding the M&A process and timeline can help MSPs navigate their exit strategy effectively, ensuring a successful transition that meets their financial and legacy goals.
For MSPs contemplating an exit, engaging with industry peers, attending conferences, and leveraging resources (like Fox and Crow Group’s evaluation consultations) can provide valuable guidance – a “No” can be a “Not now”, and Fox and Crow Group can help you take the steps necessary to get your MSP to the closing table successfully on a defined timeline.
Free Resources for MSPs Considering Their MSP Exit Plan
To help MSP owners who are just beginning their MSP exit strategy planning, Fox and Crow Group has created a free online resource: MSP EXIT.
You’ll find an e-book with worksheets, plus an archive of podcasts and webinars featuring experts in the MSP mergers and acquisitions space. If you’d like to talk about your own MSP exit plan, we’re always happy to chat!
Connect with Carrie on Linkedin, or schedule a time to chat about your goals and timeline here!
