Articles / Roundtable Recap: M&A Challenges for MSPS CFOs

Roundtable Recap: M&A Challenges for MSPS CFOs

By Salomé Gomes

Published: 2024-05-01

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CFOs from various managed service providers (MSPs) in the Benelux region gathered for a roundtable discussion exploring the complexities of mergers and acquisitions (M&A).

Organised by CloudBilling, the event served as a platform for industry leaders to exchange views and insights, shedding light on the challenges encountered in the field of M&A.

The goal of the roundtable was to delve deeper into the multifaceted issues surrounding mergers and acquisitions, focusing on integration and consolidation challenges, as well as the changing financial landscape in the face of growing client portfolios and product offerings.

In this recap, we will cover the topics our experts covered and highlight the key takeaways from the roundtable conversation. Here’s what we will discuss:

Motivations behind M&A activities
Challenges Faced by MSPs CFOs in M&A
Strategic Considerations: Key Insights for M&A Success
Lessons from MSP roundtable

Why M&A?

The conversation began with an analysis of the reasons why MSPs get involved in mergers and acquisitions (M&A). Our goal was to organise this roundtable to enable an open and honest discussion about the various complex challenges that CFOs in the MSP sector encounter when navigating M&A activities.

Here’s what we learned:

Portfolio expansion: Mergers and acquisitions help broaden offerings, increasing competitiveness in the market.
Market presence: Facilitates a stronger market presence in specific areas.
Acquisition of competences: Mergers and acquisitions allow for the acquisition of specialised skills and knowledge.
Economies of scale: Allows for cost reduction and operational efficiency.
Sustainable growth: Mergers and acquisitions boost sustainable sales growth through recurring revenues.

For an in-depth guide to M&A tailored to MSPs, check our blog on Navigating M&A: A comprehensive guide for MSPs.

The challenges of M&A faced by MSPs CFOs

As the conversation unfolded, participants shed light on the many challenges that arise during M&A and offered valuable insights for CFOs who must supervise these complex transactions.

Let’s look at the main challenges discussed:

Cultural considerations

Culture emerged as a sensitive issue, with participants stressing the importance of cultural alignment between acquiring and target companies to ensure a smooth integration process.

Governance structure

Setting up an effective governance structure proved challenging, especially when integrating various organisational models such as 'DGA organisations' into business units.

Commercial integration

Post-transaction integration of commercial departments posed challenges, especially in aligning with greater product density. Lack of familiarity with each other's products hampered cooperation and required careful incentive and financial structuring.

Clarity and expectations

Clear post-deal expectations were considered vital for accelerating the integration process. Without internal clarity, integration efforts risked becoming inconsistent and lengthy.

Technical expertise

Technical expertise emerged as a critical factor in post-deal integration, with participants noting the complexity involved, especially when dealing with advanced technologies. Balancing the need for external consultants with internal expertise proved to be challenging, but essential.

Contractual agreements

Negotiating post-deal contractual agreements, especially regarding operational and personnel costs, created complexity. Integrating acquired recurring services into existing financial operations and billing systems brought additional difficulties.

Strategic Considerations: Key Insights for M&A Success

Now that you are aware of the challenges that have been discussed, we will provide you with the strategic information to effectively navigate the above challenges.

Let's now investigate how regional acquisition trends and strategic considerations can shape your approach to mergers and acquisitions in the MSP sector:

1) Regional acquisition trends:
The discussion highlighted market-specific trends and strategies, highlighting acquisition preferences in regions such as Germany and Spain. The conservative nature of the German market favoured acquisitions in the private cloud domain, while Spain emerged as a popular destination for acquisitions in the public cloud sector.

2) Strategic considerations:

Participants also stressed the importance of strategic planning in M&A activities, emphasising the application of multiple arbitrage strategies and the preference for acquiring majority stakes or full ownership of target companies.

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Lessons from MSP roundtable

To fully understand the complexities, challenges and opportunities surrounding mergers and acquisitions (M&A) in the managed service provider (MSP) sector, it is essential to hear directly from industry experts. Their knowledge, drawn from first-hand experience, provides invaluable insights.

Throughout the discussions, participants shared valuable insights into cultural integration, governance structures and market-specific considerations, highlighting the importance of strategic planning and collaboration in achieving successful M&A outcomes.

If you have any further questions about the challenges of mergers and acquisitions in the MSP sector, don't hesitate to get in touch with us! We are committed to supporting MSP CFOs to effectively navigate the complexities of M&A transactions and drive success in their organisations.