Acquiring a Managed Service Provider Business. Part III: Integration

In Part II of the series of articles about MSP acquisitions, we discussed valuation, negotiations and deal structure. This article will wrap up the series and discuss the integration process after the acquisition.

Planning the integration

Effective integration requires building a detailed integration plan and roadmap that covers all integration aspects—business, technical, and marketing.

Integration roadmap

The roadmap shall include enough details to provide the complete picture to everyone participating in the integration project. It should cover the roles and responsibilities of participants, and everyone involved should know what is expected of them at every point. It is crucial to assign success metrics for each milestone and track against those metrics. If the project does not go as planned, metrics will help to understand what should be improved.

The metrics may include revenue growth, customer retention, contract renewal, and various technology and operational metrics.

Look at the processes, workflows, and internal tools and decide on integration, upgrade or discontinuation. The earlier the decisions are made after a detailed analysis, the better. Switching the new team to the same tools and procedures the old team uses usually seems easier. Yet, the integration could be an opportunity to review the tools and procedures and gain additional efficiencies from the improvements and upgrades.

The usual integration project for a small to medium MSP can take 6-12 months, depending on the scope of integration. If it implies technology standardization and refresh, it may depend on the customer agreements that may limit the ability to replace and refresh software and hardware on the customer’s side.

Team integration

Interview all the team members, conduct skills and qualification assessments and build a team integration plan. It is crucial to assess cultural fit and skill level. Merging teams of experienced technicians often leads to a clash of egos, reporting line issues, and tensions between the teams. Therefore, invest in team-building activities and set up constructive relationships between teams. The number one reason integrations are not going as planned is neglect of the human factor and mistakes in integrating human resources.

One often overlooked aspect is the company culture. Say one team is run like a family business, and one team has strict corporate rules and subordination. It will take time to align the culture of the new, larger organization, and proper time should be given to plan the approach to merging the culture of the organizations.

Tip: Assigning mentors to the new team members to introduce them to the new company and onboard them on the technology stack has proven to be much more effective than providing documentation and suggesting that newcomers do self-paced learning.

The acquiring company's managers should focus on retaining key employees, and retention plans should be well-thought-out. Retention bonuses and options or shares in the company are becoming increasingly common. However, transparent communication and ensuring everybody understands plans, roles, and responsibilities may be enough if the employees share the vision and believe their work lives will improve.

Technology integration

Suppose you are one of the MSPs working towards technology consolidation and integration. In that case, the integration will require mapping the technologies used by different teams to your technology stack roadmap, working on migration scripts and educating the team. If you are not standardizing technology and supporting what you have, it is surprising that you could get to the stage of acquiring other companies. It may be a time to consider standardization at this point. Talking to MSPs struggling to grow their business after integration, the author learned that the significant challenges are the team's inability to manage multiple different tools or not having scalable infrastructure to onboard new customers.

Tip: The best practice for integration is to have a staged rollout, including sandbox testing, before deploying the new tech stack to production.

Communication strategy

Develop a comprehensive internal and external communication plan for the integration roadmap. Changes like mergers of MSPs usually worry customers, and it is crucial to keep them up to date with the plans and the vision, build trusting relationships with them, and show them how their managed services will improve.

Tip: You can assume that when customers hear about the acquisition, they will start considering switching to another service provider if they are left in the dark about the transition. For smaller businesses, acquisition indicates the company's failure, as they naturally assume financial challenges. They may have deep personal relationships with previous management and may be looking to change partners now, but they expect not to have those people in place. Therefore, think about communicating with the customers and what you will tell them.

Communicating a high-level integration roadmap, the vision for the future technology stack managed service offering, and the improvements you plan for the combined company internally and externally should be a priority for management. Otherwise, it is easily forgotten.

The best communication practice is to have regular All-Hands meetings with the team about the integration process and send bi-weekly status updates to key stakeholders and the customers of the company you acquired to reduce anxiety from the changes they are going through.

Tip: A customer survey is a good idea, yet it rarely provides enough information, so having calls with customers is a better option and a chance to build relationships. Be prepared for customers trying to re-negotiate their agreements during those conversations.

Learnings from successful acquisitions

MSPs who went through multiple acquisitions and shared their stories named a few things that helped them get the most out of the integration.

Setting strategic objectives

Thoroughly review metrics of your business and the newly acquired company, and define long-term goals, like revenue growth over the next 2-3 years, increase in customer lifetime value, and improvements in SLA – whatever you decide to be the most impactful and inspiring for your business.

Communicate early

Get employees involved as early as possible in the planning. Instead of offering the roadmap designed by the management, get your team to participate in building it. This will make your team feel they have made their own decisions and will be motivated to implement the plan. It may also be a good idea to involve the customers in the process, collecting their requirements and looking into improvements they would expect – in the process, being able to upsell additional services and increase average contract value.

Identify customers at risk

While building the integration plan and interviewing customers, look for signs of dissatisfied customers looking to switch to another provider. Address their concerns before proceeding with the changes to retain their contracts. However, if the assessment shows that retaining those customers is not profitable, be ready to walk away.

Create a dedicated integration team

Consider creating a dedicated team for migration and integration rather than allocating responsibilities among multiple team members. The integration should be a priority; otherwise, it may take longer than initially planned.

Conclusions

This article concludes the series dedicated to MSP acquisition. Of course, it is impossible to cover all aspects in a few short areas, and the advice of legal and financial professionals assisting with the transaction. Yet, I hope it gives some food for thought to people looking into acquiring an MSP business for the first time.

If you have gone through the acquisition process yourself, please contact me and share your acquisition experience. I would be happy to write a follow-up article with additional tips.