Considerations When Prepping Your MSP or IT Service Business for a Liquidity Event or Capital Raise: Part 3

Considerations When Prepping Your MSP or IT Service Business for a Liquidity Event or Capital Raise

By Andrew Gaffney and Dominick Robusto

Part III: Tracking Critical Data and Key Performance Indicators

As mentioned in Part I, when it comes to putting your MSP business in the best possible position for a liquidity event or capital raise, it pays to start laying the groundwork today in terms of organization and consistent monthly tracking of key data and KPIs. Obviously, you know your business best and the specific KPIs you track will be unique to your MSP, but this represents the type of key data we see sophisticated buyers and investors request on most transactions. It should be noted that very few MSPs will be able to generate all this data with the ideal level of detail for the suggested period due to various reasons (systems limitations, M&A complications, etc.), but we believe it is valuable nonetheless to provide a thorough view of common data-related due diligence items:  

Financial & Customer (3-5 years of historical data)

• Monthly GAAP financial statements, including detailed income statement, balance sheet and statement of cash flow.
• Monthly recurring and non-recurring revenue (and ideally, gross margin) broken down by customer and service/product.
• Monthly capital expenditures by type and segmented by growth vs. maintenance
• Customer size (employees), industry, geography, and tenure
• Customer contract details (MRR, start date, termination date, renewal terms, etc.)

 Sales & Churn (3-5 years of historical data)

•  Monthly sales funnel data (calls, appointments set, closed deals, MRR/deals by status/probability, and win-rate)
• Monthly recurring revenue sales by channel/lead source, salesperson, service/product, and new vs. existing customers
• Monthly recurring revenue installs
• Monthly MRR backlog over time
• Monthly recurring revenue loss by customer and service/product
• Customer tenure and service take-rates.

 Operations (3-5 years of historical data)

• Monthly endpoints, services and circuits managed (ex. SD-WAN devices, network elements, hosted voice seats, circuits, etc.)
•   Monthly ticket/support data, including total support calls, tickets opened, closed, average time, etc.

Organizational (3-5 years of historical data)

• Employee counts by department and turnover by month
• Technical employees and certifications

In Part IV, we bring it all together as we dive into key MSP valuation drivers.

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About the Authors

Andrew Gaffney / Managing Director/ [email protected]

Andrew Gaffney has over 25 years of investment banking and corporate finance experience, leading numerous strategic transactions including mergers and acquisitions, recapitalizations and debt and equity financings. He has worked with clients in a range of telecom, media, and technology (TMT) sectors including cloud communications, managed IT services, network services and software. Andrew’s clients include Broadcore, Broadsmart, Clearspan, DeCurtis, IFX Networks, Meriplex Communications, NexVortex, OnSIP, Simple Signal and Telovations. Prior to joining Q Advisors, he worked at SunTrust Robinson Humphrey, a leading middle market investment bank based in Atlanta. Andrew received a B.A. degree in History from Washington and Lee University and an M.B.A. with honors from The Wharton School, where he was a Palmer Scholar. In addition, Andrew holds the Chartered Financial Analyst designation.

Dominick Robusto/ Vice President / [email protected]

Dominick Robusto joined Q Advisors in 2019. Previously, he executed numerous mergers and acquisitions, equity and debt financings, and strategic advisory engagements for clients across the telecom, media, and technology (TMT) industries with an emphasis on software and hardware technologies within the Internet of Things (IoT) sector at KPMG. Specific clients on whose transactions he has been engaged include 3M Company, Absolute Performance, Inc., Atlantic Metro, Cognizant, Control-Tec, Kiosk Information Systems, Smiths Group, Telco Experts, Ubisense Group plc, and WCS. Dominick received his MBA in Finance with Distinction from Texas Christian University and his B.S. from Trinity University. Dominick holds the Chartered Financial Analyst designation.