There are many proactive steps you can take in order to prepare for selling your MSP business. However, two areas can have the biggest impact in avoiding due diligence issues and maximizing the value of the sale.

Button Up Key Contracts When Selling Your MSP Business

Having a well-organized and up-to-date contract portfolio is crucial for selling your MSP business, particularly when going through the due diligence process. The contract portfolio is a key component of the MSP’s business, as it outlines the terms and conditions of the services provided to clients, the pricing structure, and the responsibilities of both parties. The acquiring company will want to review the MSP’s contract portfolio to ensure that it is complete, accurate, and up to date. Any gaps or inconsistencies in the contract portfolio can raise concerns about the MSP’s ability to deliver services effectively to clients and could impact the valuation of the business. Further, the acquiring company also will be interested to review the MSP’s contracts with its vendors.  Vendor commitments can have a significant impact on the financial health and operational efficiency of the MSP. 

When selling your MSP business, contract provisions that may get particular attention during the due diligence process are:

• Term and Termination – A company looking to acquire another, especially in the context of a stock purchase arrangement, will be interested to know what long-term and short-term commitments it is stepping into.  Are there long-term client contracts that will be a good and continuous source of regular income?  Are there long-term vendor contracts that would limit the flexibility of the acquiring company to shift business elsewhere?
• Intellectual Property – An acquiring company will want to ensure that the acquisition target company has appropriate intellectual property rights and licenses for any software or other intellectual property used in its services.  This will help the acquiring company avoid any potential legal issues related to copyright infringement or breach of licensing agreements.
• Data Protection and Security – As data protection and security continues to be a key concern in the MSP industry, the acquiring company will want to review the target company’s data security policies and procedures, and any Data Processing Addendum it may be incorporating into its contracts, to ensure that they are in line with the acquiring company’s own security standards.  This will help the acquiring company mitigate or altogether avoid blowback from any potential data breaches or other security issues.
• Liability Related Provisions – The acquiring company will want to review the liability and indemnification provisions in the target company’s contracts with its customers and vendors.  This will help the acquiring company understand the potential extent of the liability it may be taking on and whether the acquiring company has the appropriate insurance coverage to mitigate those risks.
• Assignment Provisions – The acquiring company will want to review whether there are any limitations or obligations in the target company’s contracts that relate to the assignment of contracts.  Some contracts may prohibit the assignment of a contract if the other parties to the contract do not explicitly agree to the assignment.

Data Security, Privacy Policies and Practices Need to Be In Order

In today’s digital age, data security and privacy are critical concerns for any organization, and MSPs operate at the center of these issues. When selling your MSP business, it is key that an MSP have its data security and privacy policies and practices in good shape, especially when looking to be acquired. The acquiring company will want to ensure that the MSP has robust policies and procedures in place to protect sensitive data, comply with relevant laws and regulations, and to mitigate the risk of cyber threats. In addition, the acquiring company may also want to review the MSP’s history of data breaches and security incidents to assess the effectiveness of its security measures. A robust data security and privacy program can demonstrate to the acquiring company that the MSP takes these issues seriously, has a proactive approach to risk management, and can provide a secure and reliable services to its clients. On the other hand, a poorly managed program can raise red flags and potentially harm the MSP’s chances of being acquired.