MSP Acquisitions: 11 Common Pitfalls
M&A is tricky business. Whether you’re acquiring/merging with another MSP or looking to get acquired yourself, preparation is essential, and poor planning can quickly turn opportunity into disaster.
So, what are the most common pitfalls to avoid? And how can your MSP avoid the critical mistakes that commonly derail deals?
Start here! In this post, we’re sharing 11 M&A pitfalls every MSP should know. Whatever your plans, understanding the following risks and misconceptions will set you up for a much smoother ride.
M&A Pitfall #1: Starting Too Late
You’re not planning on selling anytime soon, so you don’t need to worry about this M&A stuff yet…right?
Wrong! When it comes to consolidation, there’s almost no such thing as getting ready too early. That’s because M&A best practices are, at the same time, valid growth principles. By preparing to sell – even if you’re not planning to sell – you’re not jumping the gun; you’re leveraging established tactics to build a more scalable and valuable business.
It’s also worth noting that the current wave of roll-ups is being driven by a savvier, more selective pool of buyers. Current buyers are, as one M&A advisory firm observes, “digging deeper into operational efficiency, customer concentration, and leadership strength.”
Bottom line: Get your house in order now!
M&A Pitfall #2: Keeping Messy Books/Weak Contracts
This one is straightforward: messy books kill deals! MSPs – especially smaller shops with fewer employees – often underestimate just how orderly financials must be to please prospective buyers. You’ll also want to review your contracts prior to entering negotiations. Buyers want to see locked-down contracts with longer terms, and ideally, a clause that allows for the transfer of the contract upon the sale of your business.
Bottom line: Clean up those books and lock down those agreements!
M&A Pitfall #3: Jumping at the First Offer
While buyers have gotten pickier, the market is still highly favorable to sellers. Jumping at the first offer may seem safe, but it can leave money (or better terms) on the table. So, if your circumstances allow for it, take time to shop around and compare deal structures, valuation, and cultural fit. The right fit will maximize your outcome and set you up for long-term success.
Bottom line: Hold out for the right buyer!
M&A Pitfall #4: Ignoring Your Gut
Numbers aren’t everything. If something feels off in a deal, it likely is. Trust is foundational to a successful M&A transaction, and if you’re uncertain about a buyer’s vision, integrity, or overall competence, don’t be afraid to call things off.
In addition, it’s possible for a deal to look good on paper, and still be a poor fit. This can be due to a cultural mismatch, which should not be taken lightly or dismissed as merely a “soft” consideration. As advisory group Cogent Growth Partners notes, “…more deals fall apart because of culture clashes than financial disagreements.”
Bottom line: Trust your instincts, evaluate buyer alignment, and don’t ignore the soft side of M&A, as it can make or break a transaction.
M&A Pitfall #5: Accepting Earnouts Uncritically
Earnouts are on the rise in M&A deal structures, but not all buyers offer them (we don’t at The 20, for instance). Furthermore, not all earnouts are fair or realistic; some deals tie payouts to performance metrics that are either outside of your control or simply highly difficult to achieve. Before signing on the dotted line, scrutinize the offer’s terms, timeline, and expectations. If structured poorly, earnouts can turn into a source of stress rather than reward.
Our two cents: We think earnouts tend to create an adversarial relationship between buyer and seller, and typically serve to protect buyers’ risks to the detriment of sellers. That’s why we include zero earnouts in our acquisitions – a clean, upfront deal aligns incentives from day one and make for a much smoother transition of ownership.
M&A Pitfall #6: Focusing Purely on Revenue/Profit
Today’s buyers are digging deeper into acquisition targets than they were five years ago, during the first M&A boom in the channel. Sure, they still want to see strong revenue (with at least 70% recurring) and healthy EBIDTA, but they also want client diversification (no single client dominates revenue), sustainable cost structures, strong contracts, and low churn. If you’ve inflated short-term margins or concentrated your revenue, your valuation may suffer.
Bottom line: Highlight the stability, predictability, and scalability of your MSP – not just the top-line numbers.
M&A Pitfall #7: Assuming Buyers Only Want Sale-Ready MSPs
Some buyers will work with you to grow your business before acquisition. At The 20, for instance, you can plug into our peer group to achieve rapid growth and scale, while also aligning your core business processes with our model. The former is aimed at helping you build an MSP worth selling, while the latter ensures that integration goes smoothly if and when you choose to pursue a deal (we don’t pressure members of our peer group to sell, but rather, let owners approach the table first).
Bottom line: Don’t wait until everything is perfect to pursue a deal, because strategic preparation with the right buyer can be a game-changer.
Relevant reading: Learn more about the power of peer groups in unlocking higher multiples.
M&A Pitfall #8: Prioritizing Independence Over Integration
You found a buyer who made an attractive offer and agreed to let you stay mostly independent…Isn’t that the dream?
Not exactly. While it can be tempting to pursue deals that don’t involve extensive integration, there’s a reason more buyers are embracing unification: it works! When you tack together a bunch of different MSPs with disparate tools, operations, and culture, you get just that – a mishmash! If you’re hoping to hit performance metrics to receive your full payout, that lack of cohesiveness could come back to bite you.
Moreover, the technology services sector has historically struggled with scale, and the road to profitability is much more difficult when you’re not enlisting standardized and unified processes.
Our two cents: It’s no secret that The 20 has been committed to platform-wide integration from day one. In fact, we like to think our track record – 40+ acquisitions in under 3 years with minimal attrition – is a big reason for the shift in buyer behavior; other major buyers see how smoothly our model works, and are now adjusting their own approaches accordingly.
Bottom line: Integration is the most reliable path to M&A success – for both buyers and sellers. Staying independent post-sale can work out, but it’s a tougher road.
M&A Pitfall #9: Being Too Shy
Growing an MSP and selling an MSP are worlds apart – and a lot of sellers can feel out of their depth during the process. However, it’s crucial that you don’t let those feelings prevent you from speaking up and being your own best advocate – from asking questions, making requests, and walking away from deals that don’t meet your criteria. Remember, you’re not the only seller in the equation: the buyer is also selling (themselves) to you. Demand to be impressed.
Bottom line: Don’t be shy! You worked hard building an MSP worth selling, and deserve to exit on your terms.
M&A Pitfall #10: Not Knowing Your “Why”
Why are you selling your MSP? If that’s a difficult question to answer, you might want to slow down and do some reflecting – before inking any deals. Knowing your “why” and having a clear endgame in mind is perhaps the most essential aspect of navigating M&A. When you know where you want to go, figuring out how to get there becomes so much easier.
Are you trying to retire or would you prefer to remain in the industry, perhaps in a more specialized role? Are you looking to start a new venture once you sell your MSP? What sort of funding does your next chapter require? Do you want a quick payout, or are you thinking more long-term – i.e., securing your financial freedom?
Bottom line: Your “why” is everything. Get clear on your overarching purpose – and never lose sight of it.
M&A Pitfall #11: Not Knowing Your Worth
How much is your MSP worth? Many owners overestimate their businesses’ value, often because of pitfall #6 – focusing too much on top-line numbers like ARR and EBIDTA. Emotional bias also plays a role; you’ve poured years into your business, so it’s easy to see it through rose-colored glasses. But unrealistic expectations can lead to disappointment, friction, and a rocky deal process.
That said, undervaluing your MSP is also costly – for obvious reasons. Smaller firms sometimes assume they won’t command a strong multiple, but buyers frequently pay premiums for niche expertise, high growth potential, or dominance in a specific vertical.
Bottom line: Know your worth – not in the motivational-poster sense, but in the practical, data-driven sense. Understanding what truly makes your MSP valuable helps you walk into every negotiation with more confidence and clarity.
The 20 Helps with the Big Picture
M&A is complicated. So is scaling an MSP without the right combination of tools, processes and people. That’s why The 20 exists: to help ambitious MSP owners skip the grueling years of trial and error, and plug into a model that just works.
Growing, scaling, exiting – whatever your big business goals are, The 20 provides the roadmap to get there faster.
Get in touch to learn more.
Visit our M&A page for more free resources – including deep-dive video interviews with sellers who’ve completed their exit.