The Importance of Provider Agreements to Agency Valuation

Guest Post by Ben Bronston, Telecom/IT/Cloud Lawyer

Agency acquisitions are becoming more common. For any agency, the key to valuation is anticipated cash flow. However, the value (or lack thereof) of an agency's provider contracts is equally important. Providers typically have thousands of customers so their sources of income are diverse, but if an agency loses one provider contract it can have disastrous effects. Not only is the agency's income stream affected but so is the agency's valuation. Thus, it is very important that agents protect their income - and their potential exit value - by investing the necessary amount of resources into properly negotiating their provider agreements.

While most agents know to look for important clauses in their provider agreements (such as evergreen, non-solicitation, etc.), the vast majority of agents don't understand the interplay between the various sections of an agreement. For example, while the commissions section of an agreement may appear to contain an evergreen clause, a seemingly unrelated section could contain language that completely negates the evergreen clause. This is why it's so important that agents retain experienced legal counsel to thoroughly vet their agreements.

Any agency can say it has solid provider agreements, but how strong is each contract in reality? Will the contract survive if the agency is purchased? What if the provider is purchased? Will the agent be paid commissions for the life of each customer, or are there certain circumstances under which the provider can terminate commissions?

These are all points to be aware of to protect not only your income but ultimately the value of your agency.

Whether you're an agent who needs help with provider agreements or a VAR, VoIP company or cloud provider, Ben's full-service law practice can help you achieve your business goals. Ben and his team of telecom, IT and cloud lawyers have the technological understanding, legal knowledge and practical business experience to provide.

About Ben Bronston

Ben is an award-winning legal expert in the telecom, IT and cloud industries. For over 25 years, Ben and his team of lawyers have represented the interests of a wide variety of companies, including technology solution providers, agents, cloud service providers, hosted VoIP companies, VARs and MSPs as well as their end user customers. For more information, email the firm at info@telecomlawyer.net or call (888) 469-0579.