In this episode, we explore the world of mergers and acquisitions (M&A). Join our special guests Ryan Spillane, Sydney Hockett, Abraham Garver, and Ross Sardi as they share their expertise in the M&A space. From navigating the emotional side of selling a business to the complexities of earn-outs and post-sale adjustments, we cover it all. Discover what makes a successful acquisition, why industry-specific advice matters, and how both personal and business aspects influence M&A decisions. Whether you’re preparing to sell or thinking of acquiring, this conversation will offer valuable takeaways on strategy, planning, and finding the right partners.
Episode Highlights:
In the MSP (Managed Service Providers) industry, mergers and acquisitions (M&A) are rapidly becoming a central theme for growth and expansion. However, the journey isn’t solely about financial transactions and ownership transfers. It’s about bridging emotional and professional landscapes, where business owners let go of their legacy, and new structures take root. Through the insights of key players in the M&A space, this blog explores the personal, strategic, and practical aspects of selling or acquiring a business in the MSP sector.
Selling a business is an emotional decision. Often, MSP owners have dedicated years, even decades, to building a business that reflects their values, work ethic, and aspirations. For many, their business is as significant as any major life asset, if not more. This emotional tie brings both challenges and responsibilities for M&A advisers, who must balance the personal impacts with the financial and operational details of the sale.
One of the key areas often overlooked is the “what next” for sellers. After the sale, owners frequently find themselves at a loss, no longer the ultimate decision-makers in a business they once led. Advisers at 360 Consulting and others in the field are increasingly recognizing the need to address these emotional concerns early in the process. Having a post-sale vision, whether it involves retirement, a new project, or pursuing hobbies, can provide clarity and ease the transition for owners facing this life-altering change.
For many business owners, the transition period—known as the “earn-out”—requires them to stay engaged with the business for a certain time after the sale to fulfil contractual obligations and, in some cases, secure the full sale value. This phase is challenging, as it involves a shift from independence to a more structured role within the acquiring company.
MSP advisers share that, around six months post-sale, sellers often hit a low point as they adjust to their new status within the company hierarchy. No longer at the helm, former owners can struggle with the slower decision-making processes and limitations on their control. Industry veterans recommend planning for this transition by fostering new passions or roles outside the business well before the sale is completed. Having this personal “Plan B” not only supports sellers’ mental well-being but also ensures that they can step back and trust the new leadership to continue the business’s legacy.
Earn-out agreements must be win-win, balancing the risk with reward to keep sellers motivated and invested in the business’s success. These agreements often involve holding back a portion of the sale price, which sellers can earn based on the business’s performance under new ownership. While this arrangement can foster continuity and commitment, it also introduces potential stress and frustration if not managed properly.
A well-designed earn-out agreement aligns both parties’ interests, ensuring sellers feel supported and encouraged rather than sidelined. According to the M&A professionals from the transcript, transparency, flexibility, and communication are essential in creating an earn-out agreement that respects the seller’s contributions and recognises their ongoing role in driving the business forward.
The Australian and New Zealand MSP markets have seen significant growth in M&A activity recently, driven by both local dynamics and global trends. The interest in this region is fuelled by the high density of small and medium-sized enterprises (SMEs) and the evolving technological needs of these businesses. For companies like Evergreen, expansion into this market has been facilitated by communities such as ConnectWise, which link US firms with Australian MSPs and provide a network for seamless knowledge sharing and market entry.
Private equity firms are particularly interested in Australia’s MSP sector because of its promising growth potential. This interest translates to increased acquisition offers and opportunities for MSP owners considering a sale. However, the market’s uniqueness requires tailored approaches, where firms can either integrate into an existing tech stack or allow the acquired company to retain its brand and culture. This diversity provides sellers with more options, allowing them to choose a path that aligns with their business goals and personal values.
Private equity (PE) is a significant driver in MSP acquisitions, offering capital, expertise, and resources that empower these businesses to scale rapidly. However, PE’s reputation can be mixed, as some firms are seen as profit-driven entities focused primarily on short-term gains. Companies like Evergreen, however, seek to differentiate themselves by prioritising sustainability, long-term growth, and a people-first approach. They achieve this by keeping the acquired company’s brand and culture intact, minimising disruptions to the staff and clients, and allowing the business to operate independently while benefiting from PE resources.
This approach not only reassures MSP owners about the legacy they’re leaving behind but also enhances the likelihood of a smoother transition for employees. The commitment to nurturing and expanding the original company culture is particularly appealing for MSP owners who view their team and brand as integral to their business’s success.
To maximise valuation and appeal to prospective buyers, MSPs need a strong foundation in organic growth and a reliable sales engine. Organic growth—building a customer base through steady sales efforts rather than relying on acquisitions—is essential for showing a business’s intrinsic value and growth potential.
Non-founder-led sales, a frequent recommendation from M&A advisers, are a core component of this growth. For MSPs, where founders often come from technical backgrounds, establishing a robust, independent sales team can be a challenge. However, the value of doing so is clear: A business driven by a capable sales team is more attractive to buyers and is likely to command a higher price. Industry experts encourage MSPs to invest in building a growth-focused team to enhance their market position, making the business a prime candidate for acquisition.
For MSP owners, one of the most crucial considerations in the M&A process is finding a buyer whose goals align with their vision for the future of the company. Some MSPs, like First Focus, adopt a full integration model, bringing the acquired company’s operations and tech stack into their ecosystem. This approach appeals to owners who value the stability and resources of a larger entity.
In contrast, buyers like Evergreen maintain the acquired company’s brand and operational independence, appealing to owners who want to see their legacy preserved. Ultimately, choosing the right fit depends on the seller’s priorities and their goals for the post-sale transition. By carefully evaluating potential buyers, MSP owners can ensure that their business continues to thrive and that their employees, clients, and brand are in good hands.
The landscape of M&A in the MSP industry is evolving. With more options than ever before, MSP owners are in a unique position to leverage the growing interest in their businesses while securing their legacy. The journey, while financially rewarding, is deeply personal and can be challenging without the right support and preparation. By approaching M&A with a clear strategy, an understanding of the earn-out process, and a firm grasp on their goals, MSP owners can find peace of mind and satisfaction in the next chapter of their journey.
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