But Dell’s strategy is just one reason IT companies follow the M&A route. Some MSPs find a strategic partner that can offer them new economies of scale or a simpler route to expansion, while other entrepreneurs decide that the time is right to retire or, at least ease back on their work schedules. Each situation is unique, yet the common denominator remains the value exchange that occurs during a merger of acquisition.
The IT companies that are of most interest to potential suitors are typically well-managed and cater to specific markets. In Dell’s case, they’re rapidly expanding their services offerings nationwide—so those businesses are what they’re willing to pay top dollar for.
The same strategy applies to organizations that identify new market opportunities or feel like they’re falling behind their competitors is certain technology segments. For example, Quest Software recently acquired BlueFolder, and quickly integrated its professional services automation software with the PacketTrap MSP remote monitoring solution. The two companies’ products/services/ complemented each other and, according to Quest, give them a competitive advantage in the managed services space.
In addition to the Dell and Quest Software announcements, a number of other IT channel firms made the news with their recent M&A activities, including:
- The Aldridge Company: acquired the MSP business from Extreme Technologies, Inc.
- Best Buy: finalized its purchase of mindSHIFT, an MSP and professional services organization that targets the SMB segment
- Cisco: announced its intent to purchase ClearAccess, a device and application management platform provider
- Network Depot: acquired Evolve Technologies, expanding the service capabilities of the Master MSP
- outsourceIT and GoBeyondIT: the January merger created one of the largest privately held MSPs in the country, with more than $15 million in revenue and approximately 70 employees
Be Ready to Build or Be Acquired
While a few high-profile vendors and solution providers have made a media splash with M&A activities, don’t assume every MSP business is “ripe for the picking.” Relative to the size of the overall IT community, the actual number of completed transactions of this type is quite small. As Larry Walsh pointed out in one of his Channelnomics columns, the “hype” around consolidation is often just that; a small percentage of channel businesses are actually taking part in M&A activities.
Despite that fact, every solution provider should be building their business with the intention of selling it tomorrow—for top dollar. Even if the prospects of a “for sale” sign in the window are small, every organization should be focused on the activities that increase its value and make it more attractive to other companies. That goal is discussed frequently in entrepreneurship 101 classes, though it’s sometimes forgotten by those who set out to create a new IT business. Value comes in many forms, and it goes a lot deeper than sheer revenue and profit numbers (though those are crucial elements).
Market specialties, geographic strengths, employee productivity, company culture, and vendor partnerships all contribute to a business’ valuation. I expect to see a lot of discussions around these factors at CompTIA AMM next week, especially in the individual Community meetings. Each of these collaborative groups have been busy discussing the needs of their specific part of the IT channel and developing tools, education and best practices to help solution providers create new practices (and stronger overall businesses).
By using those resources, companies can add the type of value that potential M&A partners, vendors and investors are looking for. Even if an organization isn’t for sale, making continual improvements keeps its value high and, in these challenging economic times, is likely a better investment than putting money in the bank.
Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and industry alliances director with Autotask. Contact Brian at [email protected].
