Thinking Smarter About M&A—Why Standardization Is Critical
In my previous blog, I looked at what’s currently going on in the MSP market with respect to mergers and acquisitions. I also set the scene to discuss some of the key things we’ve learned from this activity and how this is helping to shape the way we are supporting our partners that are going through this process.
For this blog, I’m going to focus on why standardization plays a critical role in helping MSPs to think smarter about M&A, and how it can be the difference between success or failure when it comes to growing your MSP through acquisition.
First, it’s important to define exactly what we mean by standardization.
Standardization can mean a lot of different things to different organizations. In this scenario though, we are talking about using one standardized RMM platform across an entire business. This is not just about the tech, as the implications of deploying a standard RMM also link to training, deploying tech to new customers, onboarding new customers, reporting how data is leveraged from the agents, and hardening the company’s security posture thanks to fewer access points. All of this is vital to forming a solid bedrock for a successful merger.
For this reason, standardization should be a basic best-practice when you’re planning an acquisition-based growth strategy—operating with multiple platforms across a business can bring a wide range of inefficiencies, challenges, and risks, which I’m going to talk about below.
Up until now, the boom around M&A has meant that the laser-focus on consolidation has in some cases outpaced the shift towards creating a proper standardization plan. As a worst-case scenario, this can lead to product fragmentation, loss of staff, and challenges on technical resources that will impact ROI. However, with the market maturing, standardization is becoming a core focus for consolidators as they look to gain maximum efficiencies from their M&As.
Some of the key areas of challenge where standardization (or a lack thereof) can have the biggest impact include:
Integrations
If we think about this from the perspective of a PSA solution, most larger MSPs will have some sort of PSA that is integrated into their business. Having another MSP come onboard with a non-standard RMM platform would leave the business struggling to integrate that new business into the group’s existing processes and therefore prevent them from leveraging the full potential of this system and restrict efficiencies across the group. This could, of course, be applied to any other best-of-breed solutions the organization is using. Having a standardized platform to integrate means a new MSP can be brought into the fold much more quickly and efficiencies can start being made almost from the start.
Risk exposure
All organizations are becoming increasingly dependent on third-party solutions to support their businesses—and MSPs are no different. The more of these mission–critical apps a business has, the more risk exposure it has. For example, if an organization is running Salesforce and Salesforce is breached, then the company’s data is at risk. If there are multiple CRMs at play across that organization, then the risk to its data is multiplied. Reducing this level of risk—both for themselves and their customers—is something that consolidators in the MSP market need to pay serious consideration to.
One MSP recently said to me: “I’m doing everything in my power to protect my business, but what keeps me up at night is all these different applications and different contracts that I need to stay on top of to make sure that I minimize my exposure.”
This is a key point. It’s not as simple as trying to manage their first point of exposure—MSPs have to consider all the operations that are associated with managing multiple tools, multiple suppliers, and multiple integrations. And this stretches beyond the operational to also include procurement and legal—if you’re running five RMMs across an organization, each one is likely to differ in areas such as contracts conditions, expiry dates, legal terms, and the like. Standardizing on one RMM can represent a serious strategic step towards reducing both an organization’s risk across the board as well as its overall attack surface.
Speed of migration
Consolidators need to be able to gain value from their M&A as quickly as possible. For me, this is about speed to migration, and it’s something with which we are focused on helping our partners. If a company has decided to buy an MSP and they have standardized on our platform, it is our responsibility to help them get that standardization implemented and fully operational as quickly as possible. Because if it doesn’t happen quickly, they’re exposed to all the risks that I just talked about. In that scenario, we as an organization need to take responsibility to help them ensure that migration happens quickly.
It is not a perfect science because every MSP configures their RMM in a particular way, so it’s impossible to create a standard approach; but by working closely with project management teams on both sides, implementation can happen quickly and with minimum impact. This means new businesses can be integrated smoothly, avoiding loss of staff and customers, and quickly gaining the efficiencies that will ultimately lead to a faster ROI.
Cost predictability
Another key point of standardization is around gaining predictability of pricing. This is clearly on one level about having one contract to manage and the economies of scale that can be gained here, but it also allows the buying business to get a sense of what the total costs are going to be of a particular M&A.
If a business buys an MSP at “X” amount EBITDA, hopefully they’re doing the due diligence to find out what it’s going to cost operationally to bring the new business onboard. Assuming that they’ve done the migration properly, standardization can help them anticipate what their cost structure is going to be moving forward once the business is fully onboard. So yes, it is having a single point of cost but it’s also around a strategic part of the business case associated with an M&A as they can get a better sense of what the future costs would be from a standardized service provider.
Thankfully, from what I’m seeing in the market companies are now starting to come around to the importance of standardizing on an RMM platform. However, I still don’t feel this is happening quickly enough and that, in no small part, is due to the speed at which consolidation is continuing to take place.
In my next blog, I’m going to look at the role automation can play in helping to drive efficiencies across growth-focused MSP businesses.
Davide Di Labio is senior director of sales at N‑able
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