In 2012, there were 15 mergers and acquisitions involving members of the Ingram Micro-backed VentureTech Network (VTN) reseller community, so it’s hardly a surprise that M&A was one of the big topics at this week’s VTN spring invitational in Fort Lauderdale, Fla.

There are a lot of reasons for the sudden rush of acquisition activity in the community. Ingram is quick to point out that many of the members, particularly those who’ve been in it from VTN’s genesis 15 years ago, have become far more mature in their business than many of their contemporaries outside of the peer group, and there’s also the close-knit community of the group which may serve to foster hookups between VTN members who’ve had many years of working together and even partnering on joint wins to make the merger process a bit easier.

Paul Dippell, CEO of reseller consultancy Service Leadership, also provided some clues, noting that that while the managed services space is getting more competitive, solution provider valuations are also at or near an all-time high, owing in large part to increased operational maturity on the part of the best managed service providers. Scale is also increasing in the VTN community, council co-presidents Rob Bracey and Alan MacDonald noted, with more VTN members moving up into the $5 million to $9 million range.

Add to that some intangibles, such as the “first generation” of modern solution providers reaching the point where they’re ready to cash out, or the arrival into the market over the last few years of giants like Konica-Minolta and Best Buy, and you’ve got a bit of a land grab in the managed services space.

“People have built up some cash reserves, and they’re starting got make moves,” said John Fago, senior director of channel marketing at Ingram Micro, and the distributor’s lead on the VTN community. “There’s a lot of inside-the-community deals going on. They already know each other, know their respective businesses, and they’re already at a comfortable place with each other.”

Three members of VTN who have recently sold their businesses – all former council presidents – took to the main stage to share some of their experiences – “the good, the bad, and the ugly” of “selling your baby.” Their advice: be ready, seek advice, take your time, and consider cultures.

Invoking images of Jacob Marley and Ebenezer Scrooge in A Christmas Carol, Larry Poirier, formerly CEO of Nitro IT Business Solutions, and now president at TUC Managed IT Solutions said he, Peter McMahon (whose Protek was also snapped up by TUC last year), and Tommy Wald (who sold his company White Glove Technologies to MindShift last July) were there to tell them that “these chains we’ve formed in life, we wear after we sell our companies.”

Obviously, there are positives to selling their business. For one, there’s the added cash in the owner’s pocket. But that’s just the beginning – there’s the freedom of not being personally “on the line” for the business, there are additional resources supporting the areas (marketing, human resources) that are most often troubling or neglected to solution providers, there are opportunities to take on a more strategic role as those additional resources mean less day-to-day time spent “in the business.”

But there are also clear challenges, particularly for owner who are used to being “in control” after 20 years or more of running the business themselves. There are also potential culture clashes, a small and nimble organization may suddenly become much more corporate in nature, there are risks of alienating longtime employees and even top clients, and new owners are more than likely to want to make their mark on the business. And then, there are the problems of two becoming one – even when those two are speaking the same language and using similar back-end systems.

“As we went through the integration, we were both using ConnectWise, but all of the things we’d done with ConnectWise – the automation, the metrics, the reporting and processes – it just all fell apart,” remembered Wald of his experience. “It creates a great deal of disruption in terms of how things get done.”

And while every organization hast lost staff or customers – Poirier warned to be prepared for it to happen “in droves” during the post-acquisition period.

“Selling the business is an inflection point not just for you, but for everyone in the business, and everyone reassess their position in the business and their relationship with the business when you sell,” Poirier said. “People who’ve never looked [for other work] before suddenly start looking.”

So how do you maximize the positives and minimize the negatives? The three executives offered their advice. Before selling the business, the trio suggested that solution providers:

• Make sure their financial statements are in shape and accurate;
• Know the (fair) valuation of their company;
• Get professional help from M&A consultants and/or lawyers who are familiar with the industry; and
• Have a “pre-nuptial” in place to cover what happens if the marriage goes sour once the honeymoon is over.

Poirier said that cultural differences are “the number-one destroyer of value” in acquisitions, and admitted he knows about that – having sold his company, a sales-first “bunch of cowboys” who would figure out how they were going to deliver after they’d sold it to an organization that was intensely process- and brand-driven.

“It was 180 degrees different from our culture beforehand,” he said.

McMahon counseled would-be sellers to take their time, and to let key staff in on the decision as early in the process as possible by law and convenience. And Wald added to that caution, saying that the roles of key players should be decided before the final deal is inked. “Doing that on the fly in the middle of battling all of this is a very difficult thing,” he said.