Valuations and Demand Remain High
Starting in 1992, the Microsoft Certified Solution Provider program was created to support a global network of IT Services businesses representing Microsoft solutions. During the last 30 years, the various iterations of this program directed more than 300,000 global partners. Do you sell your Microsoft business is the ultimate question and 2023 remains an appealing time to consider.
Late last year, their channel partner program was renamed the Microsoft Cloud Partner Program, once again instituting sweeping changes for all partners. While many of these changes are welcomed, others have long-time partners re-evaluating if this is the right time to sell their practice.
From a demand perspective, ITX continues to field unprecedented inquiries from strategic buyers and private equity firms for Microsoft partners. Valuations remain steady and attractive, and ITX’s smaller mid-market deals (under $25M in transaction value) continue to close.
Microsoft launched its Partner Network to help partners expand their reach, build deeper relationships, and take advantage of new opportunities. Partners gained access to training, support, and resources to help better serve customers — and Microsoft was afforded the opportunity to work with more innovative companies that incorporate Microsoft products into their offerings.
Microsoft’s Partner Network was made up of four levels—bronze, silver, gold, and platinum. Partners reached each level by achieving competencies based on several criteria, such as how many exams they have passed and customer usage.
The higher the level, the more benefits partners received.
There were many benefits partners achieved:
- Insight into new technologies and market trends;
- Expanded business offerings;
- Improved bottom line by making more money selling Microsoft products;
- Improved customer retention rates by offering clients better services through new technologies.
What Changed in 2022?
Microsoft launched its new Microsoft Cloud Partner Program in late 2022 and altered competencies to solution partner designations. This means partners can focus on specific areas of expertise rather than being forced to maintain various skills simultaneously.
For example, suppose you are an IT firm specializing in building software solutions for large enterprises. Today, consultancies are encouraged to focus on Azure products or services that help customers manage their cloud environments. Alternatively, if your company is smaller but has a great understanding of Azure, you need to become an expert in how Azure can help businesses grow and scale quickly.
The most significant change is that the program will no longer award partner competencies (bronze, silver, gold, or platinum), but rather solution designations, which will be awarded based on partner performance in one of six designation areas:
- Security (Microsoft 365 and Azure)
- Modern Work (Microsoft 365)
- Business Applications (Dynamics 365 and Power Platform)
- Infrastructure (Azure)
- Data & AI (Azure)
- Digital & App Innovation (Azure)
This change will impact your business tremendously if you are a competency-based partner. You’ll need to assess whether your current offerings align with the new program and make adjustments as necessary. For many established smaller mid-market partners, these new requisites are a sign that it’s time to sell. And in some cases, the value of their business is greater in the hands of a buyer that it may ever be through organic growth.
A Microsoft Cloud Partner Program designation identifies broad technical capabilities and experience. In addition, it demonstrates how successful you are at delivering customer results.
Microsoft measures a partner’s success by its performance, skills, and customer satisfaction, tracked by a point system:
- Performance: Measured by attaining new customers.
- Skilling: Demonstrates commitment to training and skills development. Having specific certifications on your team earns you points.
- Customer Success: The number of successful deployments and usage growth measure customer success.
Partners need to earn at least 70 points (including points in each subcategory) out of the available 100 points to attain a Solutions Partner designation.
Partners will be able to achieve designations based on the types of solutions they create:
- Security: As a Solutions Partner for Security, you demonstrate your broad capability to help customers safeguard their entire organization with integrated security, compliance, and identity solutions.
- Modern Work: As a Solutions Partner for Modern Work, you demonstrate your broad capability to help customers boost their productivity and shift to hybrid work using Microsoft 365.
- Business Applications: As a Solutions Partner for Business Applications, you demonstrate your broad capability to deliver solutions with Dynamics 365 and Power Platform.
- Infrastructure: As a Solutions Partner for Infrastructure, you demonstrate your broad capability to help customers accelerate the migration of crucial infrastructure workloads to Azure.
- Digital App & Innovation: As a Solutions Partner for Digital & App Innovation, you demonstrate your broad capability to help customers modernize existing applications and build cloud-native apps.
- Data & AI: As a Solutions Partner for Data & AI, you demonstrate your broad capability to help customers manage and govern their data across multiple systems to build analytics and AI solutions.
The Solutions Partner designation only requires a partner to acquire one and pay $4,730 a year. There is no additional charge for multiple. But the fee is comparable to the old Gold competency for Solutions Partner.
There has been a significant increase in metrics across the board, with a large emphasis on growth: customer growth, certification growth, and usage growth. Something to consider if you sell your Microsoft business.
When is this happening?
Microsoft implemented these changes in late 2022:
- September 30, 2022: The last date to renew a legacy competency.
- October 3, 2022, to the partner’s next anniversary date:
- On October 3, Solutions Partners started to earn designations.
- Partners must meet the requirements to attain the Solutions Partner designation and receive the new customer-facing badge.
- Even though legacy competencies and associated badging are no longer valid, partners who had a competency on September 30, 2022, could continue to receive legacy benefits until their next anniversary. Once that period passed, there is the option of continuing to purchase legacy benefits.
- On the partner’s first-anniversary date after October 3, 2022:
- If one attains the Solutions Partner designation, they can take advantage of the updated Solutions Partner benefits or retain their legacy benefits by paying a fee.
- A partner who does not meet the requirements for a Solutions Partner designation but renewed a competency by September 30, 2022, will be able to maintain their legacy benefits by continuing to pay the fee.
Partners will need to align their current competencies to the new Solution Partner Designations to find the one with the right fit. Especially when it’s time to sell your Microsoft business.
What impact does this have on partners?
The new designations were introduced to help manage the massive uptick in cloud businesses, customers and new tech stacks that are being developed specifically for cloud environments. It’s an important step for Microsoft to take—one that helps them better understand their partners’ business models and needs.
However, this change may be confusing when it comes time to renew contracts with Microsoft. Because there are now six different categories of partners, it may be difficult to know which category a partner fits into without further research.
Additionally, some of these partners may be unable to adapt their business models in time for the changeover period. A typical MSP will only qualify for this new designation and subsequent incentives if Microsoft adds new growth metrics. Silver partners or those barely reaching Gold status will likely not meet the criteria for Solution Partner.
It’s an important move for Microsoft, but the changes make it harder for partners who offer hosting options in their business models to continue working with Microsoft. Again, something to consider if and when you sell your Microsoft business.
To Sell or Not to Sell
Selling your Microsoft business is one of the biggest decisions you’ll ever make as an owner/operator. With buyer demand high and valuations remaining steady, combined with the amount of effort it takes to thrive in the new Microsoft Cloud Partner Program, it’s smart to weigh your options. During the last 25 years, ITX has sold more smaller mid-market Microsoft practices than anyone in the industry.
If you’d like to learn more, let’s talk.
If you are contemplating the sale of your MSP/IT consultancy, let’s talk. ITX has completed 200+ IT-enabled transactions in more than 20 countries during the last 25 years.