Dell announced today its intention to buy MSSP SecureWorks for an undisclosed amount of money. Apart from the M&A angle, another question is why is Dell doing this and what does it mean to the average MSP out there.
Dell is no stranger to acquisitions in the managed services arena. Most notably, they acquired SilverBack Technologies several years ago. While there are mixed feelings about that deal and how Dell has managed the MSP channel partners they inherited from that deal, the SecureWorks acquisition begs the question “are we going to see more of the same?”
Obviously, it’s too early to tell. The natural conclusion is Dell wants to be relevant in the managed security space and the SecureWorks deal definitely will accomplish that goal. If I was the average MSP on the street, I’d be asking myself if Dell will treat the SecureWorks acquisition similar to how they treated SilverBack. Many MSPs were not happy with the perceived threat of Dell going direct to end-users, circumventing the MSP partners. While things seem to have quited down since then, SecureWorks again raises key issues of channel behavior and competition.
If I had to guess, I’d say Dell simply wants to maintain its security credentials in order to sell to larger enterprise clients. Only time will tell if SecureWorks offerings start getting marketed and sold to SMB clients.
Many companies ask what the difference is between an asset sale and a stock sale. This is an important question that has many important implications for both the buyer and the seller. The following is a general list of characteristics for both deal types.
Asset deals:
- Buyers can pick only the assets they want and exclude liabilities they don’t want
- Can be less complicated to transact from a legal standpoint, particularly if there are any securities filing requirements
- There can be significant tax advantages to an asset purchase to the buyer
- Usually require less due diligence on the part of the buyer since liabilities can be excluded from the deal. These deals generally have less risk for the buyer
Stock deals:
- Allow certain assets to be transferred more easily to the buyer. This can be very important when dealing with technical certifications, service contracts, and other valuable assets
- Can have tax benefits to the parties, especially when they are states that impose asset transfer taxes
- Require more due diligence on the part of the buyer
As you can see, there is no right or wrong deal structure, only the perfect deal to suit both parties. If you are considering a M&A transaction and need some strategic advice, feel free to contact me.
If you read one blog this week that prompts you to actually do something meaningful in your MSP practice, please make it this one. I have seen a lot of MSPs brag over the years about how well they are doing, how much money they bring in, and how cool their NOC is. This behavior stands in stark contrast to how they act when it comes time to either sell or value their company.
It’s almost a night and day comparison to how companies behave under normal times and then go into panic mode when they find out their business isn’t worth as much as they thought. “If only I could go back a few years and make some changes, my business would be worth more!”, they say. Well, pay attention and grab a pen because I’m going to give you some very simple pointers for making your MSP practice more valuable.
- Contracts are King: if it doesn’t appear in a service contract, it doesn’t exist. No, seriously. Revenues not tied to a SLA are simply not worth as much during a valuation so make sure you get as much as you can in those SLAs.
- Assignable SLAs. If you don’t know whether your service contracts are assignable, go get a lawyer and have those SLAs changed immediately.
- Keep good books. Tidying up your financial records the night before a M&A or valuation transaction is like studying for an exam without ever having read the course material. It’s too late! Don’t get caught unprepared; start keeping your financial books now. Hire an accountant if you don’t have one but get it done. It will save you lot of trouble later on.
- Profit, Profits, Profits. Running a lifestyle business and minimizing taxes are all well and good but if you want to have a highly valued MSP practice, start paying attention to your bottom line. MSPs with little to no profits at the end of the year will simply not command attention. A healthy bottom line will do wonders for your MSP’s valuation.
These are only a few of the ways you can start to add value to your MSP business. Even if you don’t plan to sell your company anytime soon, doing these simple things will have a positive impact on your business.
