The Buy-Side Advisory Model and Transaction Therapy
Rick Murphy, CEO of Cogent Growth Partners, explains his firm's distinctive approach to MSP mergers and acquisitions. Unlike traditional sell-side brokers who run broad auction processes, Cogent operates as a buy-side advisory firm that treats M&A as a marriage process rather than a property transaction. Their trademarked 'Transaction Therapy' methodology focuses on cultural fit and strategic alignment before discussing valuation. Murphy emphasizes that most MSPs they work with aren't actively for sale but are 'M&A curious' about their company's value and potential partners. The firm represents buyers on a success-fee basis but works collaboratively with both parties to ensure deals succeed, viewing transactions primarily as talent acquisitions rather than simple book-of-business purchases.
Financial Due Diligence and MRR Definition Challenges
A significant portion of the discussion addresses the financial complexities MSP owners face during M&A transactions. Murphy reveals that many MSP owners struggle with accounting fundamentals, which Cogent helps navigate through their proprietary cash-return modeling system. A critical issue is the inconsistent definition of Monthly Recurring Revenue across the industry—what owners report as MRR often includes various revenue streams with different margin profiles. Cogent's discovery due diligence process categorizes revenue into distinct buckets: monthly recurring services, monthly recurring resale, cloud resale, project business, and product revenue. This granular analysis often reveals that reported revenue figures don't reflect actual profitability or sustainability, which directly impacts valuation and deal structure.
Customer Contracts as Deal Value Drivers
Murphy identifies customer contract quality as one of the most significant factors affecting MSP valuations and deal structure. Many MSPs operate with weak contractual protections—30-day or 90-day termination clauses, or no written agreements at all—which creates risk for buyers and necessitates earn-outs, seller notes, or other deferred payment structures. In contrast, MSPs with three-year ironclad contracts that have been tested in court can command higher valuations and receive more cash at closing. The strength of customer agreements directly correlates with business transferability and sustainability post-acquisition. Murphy also emphasizes the importance of non-solicit agreements with employees to prevent customer relationships from walking out the door with departing technicians, a common risk when customer ownership is concentrated in individual team members rather than distributed across the organization.
