Looking to Elevate Your MSP for M&A? Here Are 5 Ways You Can Get Ready for a Big Exit

The managed service and security space is at a crossroads. While providers have generally thrived and proliferated over the years, a period of mass consolidation, unprecedented M&A, and private equity-backed rollup may be on the horizon.

As the “golden age” of managed services comes to an end, your MSP needs to prepare for what’s to come. Whether that’s cashing out, accelerating growth, or joining forces with another provider, you need a strategy to maximize your organization’s value.

Facing a rapid state of M&A, MSPs are an attractive investment opportunity. The most in-demand are those with healthy business models and a focus on cybersecurity. 

And as regulatory and risk landscapes intensify, compliance as a service provides another appealing onramp to the type of recurring revenue that investors and potential acquirers are looking for.

In this post, we’ll provide five key strategies to boost your value, attract potential buyers, and ensure a successful exit for your MSP or MSSP.

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1. Build Out Your Cybersecurity and Compliance Practice

If your MSP has aggressive growth or M&A goals, cybersecurity and compliance could be your onramp to better margins, revenue, and retention. It’s the fastest-growing segment of managed IT services, and it’s an offering that potential investors and buyers are looking for.

In a recent Apptega survey of managed service providers, 80% of respondents said they were currently offering security services. If you’re among the 20% that aren’t, now may be the time to start.

A cybersecurity practice is not only a growth opportunity but also a must-have for your clients. Cyber threats are constantly evolving, and businesses are increasingly focused on maintaining strong security postures. This is especially relevant for those dealing with sensitive customer data, such as the financial services and health care industries. 

The same is true for compliance, where a growing list of laws, regulations, and frameworks has businesses turning to providers for guidance. 

But according to the findings of our inaugural State of Continuous Compliance Report, only half of security providers offer managed compliance as a service, despite nearly 75% viewing compliance as a high-growth business area. This gap presents an opportunity for MSPs and MSSPs to further differentiate themselves and widen their M&A appeal.

Compliance is a way to not only ensure regulatory requirements are met but also show the value and ROI of your other security services. Consider bundling cybersecurity services with a formal compliance offering. Doing so creates a broader offering with higher value for your clients. 

When bundled with your security services, a productized continuous compliance offering can deliver:

• Higher margins by increasing consumption of your security services and managing compliance in a way that’s less expensive than you could do it on your own. 
• More recurring revenue through ongoing compliance services and product delivery.
• Lower client churn through ongoing services and greater value for clients.

Of course, not every MSP has the resources, expertise, or budget to build out a cybersecurity and compliance practice. If that’s the case for your organization, consider partnering with a managed security provider to grow your business. Evolving regulatory, security, and privacy landscapes demand partnership. And by aligning with your managed security peers, you can maximize growth without building out your own security and compliance practice.

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2. Focus on Recurring Revenue Models

If you’re preparing for an exit or just trying to grow your business, consider shifting to a recurring revenue model. Potential investors and buyers want to see predictable revenue streams. And that steady cash flow comes from ongoing client engagement.

Predictability is key. One-off engagements contribute only temporary revenue, which isn’t sustainable and makes it harder to achieve growth goals. 

According to our State of Continuous Compliance report, 75% of MSPs are targeting at least double-digit recurring revenue growth in 2024. Those are pretty aggressive goals given a cut-throat environment where competition is up, margins are down, and revenue is sideways. 

Of the providers currently offering compliance services, 86% said they were interested in turning one-off compliance projects into continuous compliance as a service offerings for their clients. 

But even with clear interest, only 36% receive more than half of their compliance revenue from recurring projects versus one-off engagements. For the majority, less than a quarter of compliance revenue is recurring. So, providers could be leaving value on the table when it comes to recurring revenue potential.

Using our ROI Calculator for providers, you can see the value of continuous compliance in your own numbers (when offered through Apptega). The image below is a good example from a real Apptega partner who saw an increase of more than $3 million in net new ARR.

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3. Focus on Reducing Client Churn

Part of showing predictable, recurring revenue streams is having high client retention. Potential buyers and investors want to see positive, long-lasting relationships with clients. And providers have an opportunity to deliver security and compliance in a way that enables growth not only for their businesses but also for their clients. 

As previously mentioned, continuous compliance isn’t just a way to ensure regulatory requirements are met. It’s also a way to measure progress, justify costs, and validate the ROI of your security services — especially if you’re using a continuous compliance platform. 

When your technology systems are intertwined, you can access data to surface new opportunities and drive ongoing value conversations based on measurable business outcomes. In other words, you can show clients how individual security services contribute to their overall security postures, mapping each service to the compliance controls they help fulfill.

Why is that helpful? It creates a more proactive way for clients to assess and maintain their security postures. Instead of waiting for a breach or an audit to discover that they aren’t meeting certain requirements, they can track and report on cybersecurity and compliance in real time.

In our recent survey report, 70% of providers said their clients would be interested in continuous compliance offerings that include ongoing, real-time monitoring and scoring (instead of only in the lead-up to audits). 

Paired with the right compliance tool and bundled with security services, continuous compliance creates a broader, differentiated offering with higher value for your clients. That means stickier clients and less churn. Net retention goes up because you’re selling your clients more tools and services to improve their security postures and maintain compliance.

Beyond greater value and the upsell opportunities, continuous compliance is also an opportunity for your clients to improve ROI. Below is an example of how a client could see a 28% increase in ROI for their cybersecurity spend. 

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How can continuous compliance provide a boost for your clients? Use our ROI Calculator to quantify the impact on their revenue and growth.

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4. Optimize Operational Efficiency

Building out your product and service offerings takes time, resources, and specialized knowledge. And while the right offerings can make or break your M&R appeal, not every MSP is equipped to offer services such as security and compliance.

Around 85% of providers face “significant challenges” maintaining compliance for their clients. These challenges include:

• Lack of resources
• High cost
• Lack of expertise
• Lack of the right tools/tech
• Not enough client demand

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You’ll notice the biggest challenges are lack of resources, high cost, and lack of expertise. But these challenges could be remedied with the right compliance automation software, as automating your workflows can reduce manual, tedious tasks and free up time.

Compliance automation tools help tame the challenge of complying with endless regulatory requirements, frameworks packed with controls and sub-controls, and overlapping security demands. 

While the right tool can fast-track your compliance journey and improve your margins, the wrong one can add yet another blocker to an already time-consuming and resource-intensive process.

More than 30% of providers cited a lack of the right tools or tech as a key challenge. So, given the number of options on the market, how do you choose the right one? 

Here’s what a solution such as Apptega can do to help improve cybersecurity and compliance management for your clients (please note that not all compliance solutions offer these features):

• Automate the assessment process.
• Build and implement cybersecurity and compliance programs.
• Track and measure progress throughout.
• Provide real-time health and scoring.
• Manage the pursuit of multiple frameworks (especially when it comes to mapping/crosswalking similar controls).
• Provide continuous monitoring. 
• Create one-click reports.
• Easily collect evidence.

These are just a few things that compliance solutions like Apptega can do to help your organization improve operational efficiency. 

Keep in mind that as your operational efficiency improves, you can also expect reduced costs over time and, more importantly, a higher quality of service, leading to greater client satisfaction and retention.

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5. Differentiate and Build a Strong Brand

Let’s go back to the point about competing in a sea of other MSPs or MSSPs with the same growth and M&A aspirations. If your goal is to stand out to potential buyers, the more you can differentiate yourself, the more profitable your exit. 

How can you stand out from the competition? We already established several ways in the first four strategies above, all of which are key to differentiating your MSP. Here’s a quick recap as well as some additional strategies:

• Build out your cybersecurity and compliance practices.
• Bundle cybersecurity with a formal managed compliance as a service offering.
• Offer continuous compliance to show buyers a recurring revenue stream.
• Take steps to improve client retention.
• Improve efficiency and value through automated tools and technology.
• Align security services with best practices compliance frameworks.
• Use framework crosswalking to easily map controls across similar frameworks.
• Consider a partner program for additional go-to-market support.

The last strategy is an important one for providers who lack the resources to market, sell, or use certain products and services — especially services related to cybersecurity and compliance. For example, the Apptega Partner Program delivers exclusive benefits and support to help boost your go-to-market motion. From sales and marketing support to tailored software and training, our partner program is built for providers that want to build world-class continuous compliance and security posture management offerings.

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“We partner with cutting-edge solutions like Apptega that make it much easier to give clients visibility into their cyber postures and where they need to reduce risk. Being able to take data from a single assessment and crosswalk against multiple regulatory requirements … It’s much easier than the old way, trying to interpret and share information through manual spreadsheets.” - Tracy Fox, SLED Business Director at Foresite Cybersecurity

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Following the strategies above to differentiate your business can deliver faster sales cycles, greater investor and client confidence, better insurance rates, and other business benefits. 

To further promote your differentiated services, consider client testimonials, case studies with real-world success stories, a clearly defined and unique value proposition, and investing in marketing to build and maintain a solid brand.

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Additional Tips for M&A Readiness

The above points are the five most important strategies for making your business more attractive to potential investors and buyers. But here are a few more things to consider as you prepare for your future M&A: 

• Make sure all financial records are clear, transparent, and accurate. Transparency builds trust with potential buyers, and financial records need to be accurate to allow for crucial projection and evaluation calculations.          
• There will be a lot of documents, contracts, overlapping information, and more to juggle. Make sure all contracts, licenses, certifications, agreements, etc. are in order. Ideally, work with a legal advisor to ensure smooth proceedings (to prevent future “proceedings”). 
• As for your valuation, make sure to get it done by a professional to set realistic expectations for the sale.
• Speaking of professionals, it’s also important to work with M&A advisors, especially highly experienced ones. You can’t put a price on hiring people who have gone through this process countless times. They can walk you through it step by step, answer your questions, and help simplify the M&A process. Plus, they can help you identify potential buyers and coach you through the negotiation process for terms your organization can be happy with.

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Conclusion

Most of what we’ve covered here is to learn, adapt, and optimize your MSP or MSSP for a highly profitable M&A. That means strengthening your offerings through bundled continuous compliance and security services, improving efficiency through automation, and building a strong, differentiated brand.

Now is the time to make your organization as buyable (or mergeable) as possible. If you can, consider working with advisors, other providers, and automated cybersecurity solutions to widen your appeal. 

Follow through on these steps, and you’ll be on your way to achieving a favorable, rewarding, and profitable exit.

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