So I review MSP/MSSP deals on a semi-regular basis, and typically they have a few warts but it's not all bad. However, I had occasion to look at one recently that was really the worst I've seen in awhile and thought I'd present it here as a great example of a bad deal that looks good if you don't know anything about technology.

Here's the presentation:

- steadily growing year over year, projected EBITDA for 2022 at $300k on gross of $1M
- 90% of clients on contract and no concentrations by size or industry
- 3000 sqft datacenter space at 60% capacity
- fully trained staff run everything, management is hands off, growth to date has been strictly word of mouth
- selling due to personal/family reasons, priced for quick sale at $500k

We take a quick look at the books and everything looks pretty normal for all the KPIs, there's low staff turnover, high client retention rate year over year etc. They're on the outskirts of a major city and it wouldn't take much to crank up the marketing, seems like a great deal with tons of opportunity just waiting to be tapped, or leave it operating as-is and enjoy the revenue stream.

Until you start digging into the technical details...

Red flag #1 - their RMM system is known to be woefully insecure and their cybersecurity implementation (which could potentially offset the RMM weakness) is ten years out of date.

MSPs always have a big red target on their backs because once they're breached there's a good chance their customers will fall like dominos. With the systems they have in place right now there's actually a good chance these guys have been penetrated already and don't even know it, (there's often a 3-6mo lag between initial breach and the bad guys actually doing anything with it.)

...but the price is good enough that the transition cost to address what we see there isn't a deal breaker. So let's see what's behind the next door...

Red flag #2 - the datacenter space has qty-3 75kVA UPSs, which sounds great until you do the math; this is nowhere near enough to handle 60% capacity of a 3000 sqft space, unless the racks are very sparsely populated and there's no redundancy. Lo and behold this is indeed the case.

But wait, it gets worse, there's only a single(!) 250kW backup generater, which at least matches the UPS sizing, but in neither case is there any way to service the equipment without significant risk of downtime, (did I mention this is in TX, the state famous for unreliable power?)

The only way to remediate the datacenter situation is to spend a lot of money and/or move all the customers to a better facility. One way you're looking at a large reduction to the customer base, (assume 50% in this case) and the other way at zero to negative margins for some years.

And this is right off the bat, who knows what other bad choices they made that will be uncovered down the road?

As it stands right now this MSP is a trap, both technically and legally, it could be FREE and it would still be arguably a bad deal....