Channel investors, Angel investors, Mergers and Acquisitions, Mergers and Acquisitions, Private equity, Venture capital

Friday’s Exit Strategy: 12 Intangibles That Influence MSP Valuation

Thrive CEO Rob Stephenson
Thrive CEO Rob Stephenson

You're preparing to potentially sell your MSP or IT services provider business. Generally speaking, monthly recurring revenues (MRR) and profit margins will most greatly influence your valuation. But plenty of additional "intangibles" can influence how much your business is worth.

Below are 12 of those intangibles, according to Rob Stephenson, CEO of Thrive Networks -- a Top 100 Vertical Market MSP for 2018. Thrive itself was most recently acquired in 2016. And in 2017, the company acquired Precision IT of New York.

Stephenson shared the points below during an MSP M&A Symposium hosted by Kaseya earlier this month near Miami, Florida. We've attempted to paraphrase and expand on Stephenson's 12 sound bites to help consider these intangibles...

1. Stephenson Says: Why are you selling? ChannelE2E's spin: If you're desperate, naturally, you'll be squeezing your own valuation -- like a salesperson who cuts pricing just to win a deal.
2. Stephenson Says: Logical Succession Plan? ChannelE2E's spin: Is a potential company sale a logical succession plan for both the seller and the buyer... and do both sides agree on what the seller -- the person -- will do post-deal?
3. Stephenson Says: Reputation? ChannelE2E's spin: What do your customers, partners and potential suitors think about your company?
4. Stephenson Says: Sustainable Go-to-Market Strategy? ChannelE2E's spin: Is there plenty of gas in the tank to keep this business going?

5. Stephenson Says: Positive Momentum? ChannelE2E's spin: Are your profit margins predictable and consistent, and are your actual profits growing in a consistent manager?
6. Stephenson Says: Engineering Expertise? ChannelE2E's spin: Got in-house know-how?
7. Stephenson Says: Cloud Strategy? ChannelE2E's spin: Got one, is it unique and does it actually generate real profits for you?
8. Stephenson Says: Cyber Security Strategy? ChannelE2E's spin: Got one, and does it stand out from all the security noise?

9. Stephenson Says: Employee Tenure.ChannelE2E's spin: Do employees tend to stick around at your company or has their been a lot of churn?
10. Stephenson Says: Market Employee Compensation Rates. ChannelE2E's spin: How does your compensation compare to regional rates, along with rates of the buyer?
11. Stephenson Says: Competitive Advantage – Differentiation. ChannelE2E's spin: What makes your business stand out from local, regional and national?
12. Stephenson Says: Logical Explanation of any “Issues” - Proactive. ChannelE2E's spin: Let's say your business hits some sort of hiccup. Make sure you explain the problem proactively and fully disclose the issue to the buyer -- rather than trying to hide it in a closet or sweep it under the rug.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.