Abraham Garver: Why Private Equity Rollups Push Smaller MSPs Into New Market Niches

[00:00:14] Mike Harris closed a conversation on this show with something that stuck. He said valuing your MSP is like valuing a baseball card. It's worth what somebody will actually pay for it. He's right. The problem is most founders go to market optimizing for the wrong things and only find out what buyers actually valued when it's too late to change it. Mike was here. Kurti Gavri from Thrive was here. The one person who wasn't, due to technical issues.

[00:00:44] was Abraham Garver, the banker who ran the works cited process. Today we get the missing third of that conversation. The sell side view, the market view and the honest version of what the M&A narrative means for founders who aren't sure whether they're building to run or building to sell. Welcome to the Business of Tech lounge. This is where we break down what's changing in the IT services market, what it means for providers and vendors and what to actually do about it. If you're running our service,

[00:01:14] you're supporting an MSP. This is about making sense of the environment you're operating in, not just the headlines. Now to make this conversation possible, a message from our sponsor. This episode is brought to you by ControlMap. Growing MSPs are using ControlMap to build recurring revenue by expanding their GRC services. Starting now, ControlMap is offering a free plan for MSPs looking to get started with providing compliance as a service. Create a free account and run an assessment. Track key items like policy,

[00:01:46] policies, risks, and evidence in one place. It's a practical way to prove value to a client before deciding to expand your compliance offering. Try ControlMap for free today. Visit scalepad.com slash Dave to get started. That's scalepad.com slash Dave. Abraham Garver is managing director and MSP team leader at Focus Investment Banking. His team is advised on more than 76 MSP transactions and helped a dozen

[00:02:16] become PE-backed platforms, including representing WorksCited in the deal we're about to talk about. He was supposed to be here as part of that panel in April and he's been here several times before. Abraham, welcome back to the show. Dave, great to see you. Thanks for having me to talk about this transaction. Yeah, totally excited to do so. Now let's the deal outline. So WorksCited, 25 years old, $27 million in top line revenue. They're highly verticalized in healthcare and

[00:02:46] in construction. And they sold to thrive in November of 2025 in a 35-day close. Now what's not on record here that we want to talk about is what the sell side process actually looked like, what your team did, how they positioned the company, and what the market responded to.

[00:03:02] So I'm going to start with the headlines here. Mike said on the April 22nd show that he decided to sell because the cost of gaining AI and security depth, either through an acquisition or retraining, was going to require a partner who already had it. Now that's a specific thesis. Walk me through what that looked like from your seat. When it came to you, what did you see in WorksCited and how did you position it to buyers?

[00:03:29] Mike and I met at an IT Nation Connect panel discussion. He was in the audience, came up after, and we just kind of hit it off. We hit it off immediately. Mike and a few months later, I went and visited with him in person in Holland, Michigan.

[00:03:52] Mike and something that, I think having done this for a number of years with MSPs, I really got to, you know, kind of two, three years into the consolidation, you know, just a really, really fortunate position, which was as an M&A advisor, you know, kind of as you're talking to somebody, they think you just want them to sell.

[00:04:15] So you're in person, you know, you know, like, you're kind of like, you know, like, you know, like, you know, like, our compensation isn't really important at all. what's important is where is this business and its employees and its customers, where are those

[00:04:43] going to be, you know, one, two, three, four, five years out after the transaction. Now let me pause there. Preparation and, you know, that element of preparation versus being unprepared. Like, Kirti told the audience that what stood out for her on Worksighted was how operationally

[00:05:06] cleaned the transparent management team right from the start. Like what is being prepared look like from where you sit as you're talking to somebody like this part, this organization is ready to go through this process. What's that look like? Yeah. And I'm going to, we, you know, we're fortunate here kind of doing this post-mortem. I'm going to pull the camera back even more and say this,

[00:05:32] like think about like Mike is, Mike and Worksighted have been successful. There's no question about it. Like nine times in a row, Inc. 5000 fastest growing one of the, you know, easily top 10 best MSP assets that in the market that transacted last year. So where we can really be a service to

[00:05:56] Mike to Worksighted to his employees and his customers is, is to start with Mike and say, what does being significant look like for you in the future? Like you've got a great asset. Everybody's going to want this. If you could write your ticket, what would, you know, what would it be? And there's a, you know, I want to bring up this book, which was first turned onto Halftime by Bob

[00:06:25] Buford. I brought this in my first conversation with Mike in Holland and said, let's challenge each other. Let's both, this'll be my second read through of the book. And it's really focused on kind of what will you be doing post close. We talked about in this transaction, it was 35 days only from the time the letters of intent, the letter of intent was signed until it closed.

[00:06:53] I think if Mike had not really thought through thoughtfully, what am I going to do with my life, with my company, kind of, et cetera, before that close, his head would be spinning and everybody else would. So a ton of this upfront, I really like to challenge the person that I'm meeting and say, I don't think you're, I don't think you should sell. And that's kind of where I start.

[00:07:22] Because that is really that, unless there's a really thought out reason for selling, I don't believe you get to a successful outcome like Mike did. And Mike and I like read this, read this book together, went through, I came back another time and said, kind of, let's talk about, you know, it's, it's called seismic testing in the book. Like, what will you do in the future?

[00:07:52] You know, maybe spend a week trying to do that, test it out and decide, is this really going to be a fit? Because Mike now is out of the MSP business entirely after this transaction. And that's very different than from, than like Rashad or Kevin Blake with Integris and TechMD and how they've gone and gone

[00:08:18] and gone and gone and grown. And so I think before you come to market, like it's table stakes to really be able to make a market. I think where we can really add value is the being thoughtful about where you're, where you want to end up. And then when you have 132 buyers, like we did,

[00:08:40] that we, we brought the asset to as we made that competitive market, there were 76 signed NDAs and then eight offers kind of even more. We discouraged some of the offers that came in that we knew would not be at market, but kind of eight at market offers. Um, it was really easy for Mike to kind of execute, even though there were all these options all over

[00:09:09] the place because he knew what he was looking for before he started. Now I got to ask, it feels like, I mean, you've, you've alluded to it 35 days really fast. And I kind of want to frame that like, is that a feature or a big risk? And like, what's a real honest, when you're thinking about advising somebody on a deal structure and a timeline, what is the trade-off that determines speed and completeness that gets to the right number?

[00:09:36] It going back to like 2020, when this consolidation really started to accelerate, um, 90 days was the standard. Everything was 90 days. And really the first month and a half was that quality of earnings really figuring out do the financials really make, do they tie back to what's been marketed?

[00:09:59] Um, and it's, there was basically always a second negotiation because inevitably they wouldn't if, uh, pre-quality of earnings wouldn't have been done. Um, so, so the private equity group then says, okay, I offered you 20 million. I've looked at your numbers very carefully. I'm taking my offer down to 16 million. Are you still interested? And if they were the next, um, 45 days would be the legal, um, agreement,

[00:10:29] uh, agreement and, you know, ultimately 90 days to close what happens today, you know, the, your advisor, investment banker helps you do a quality of earnings before you come to market. So you already know what it's, you know, what the buyer's going to find. Um, and what happens today is really, they're going to do

[00:10:53] the, the buyer. So like thrive started on day one. In addition to the quality of earnings, they also started the legal. They didn't wait because there's a lot of expense, the quality of earnings, the buyer may pay a hundred, 125, 150,000 to start the legal that they're also going to spend a hundred grand on. They're going to wait on that expense until they know they have a deal. And in our situation, we,

[00:11:21] you know, thrive was like, you've done the quality of earnings. You're the right fit for us. Mike's is saying, you know, we're the right fit for you. Um, let's start the legal on day one. And so that helped them get everything done so quickly, but also, uh, what's kind of unique here is like thrive

[00:11:44] has done 27 MSP acquisitions. This isn't like a new private equity group buying their first platform. These guys are really good there. I mean, they were, they were spotting stuff in work that focus and Mike's advisors had done, um, before anybody else. Like they were really, really, so they knew, um,

[00:12:10] they knew they could close on what was there. And that was like a competitive advantage actually to, you know, when Mike pulled the camera back and said, I've had, you know, I've been interviewed by all these people. I've interviewed them, all these other buyers. The one that really stuck out to him was thrive because they, they've, they have experienced doing this 27 times and they,

[00:12:34] that gave him a great feeling that he would be placing his company, his customers and his, um, employees in great hands, as opposed to some, some buyer that really doesn't know what they're doing. Gotcha. And that sort of balances out the two sides of preparedness, right? So there's a preparedness of the buyer and there's preparedness of the seller as well. So give me a little bit of a sense, like, cause especially let's think about this for those that are a little less experienced, right? You know,

[00:13:04] particularly, you know, they're on both sides. They may not be as familiar. I feel like there's a curve, right? There would be a curve of too fast for sure. Then there's an optimal bit. And then there's probably deal momentum falling out. Like, how do you measure that? Am I thinking about it, right? And how do you measure that momentum through the process? With, with the way that the market is, um, you know, we got, there were probably 175 buyers that

[00:13:33] we looked at to select 132 to include. Um, we can really, from that, from, you know, from that number, we're, we're really, we're, we're really, uh, running the process to at the end of the day with, you know, an Excel spreadsheet, force ranking the different buyers and a key criteria is

[00:13:57] certainty to close. And so if one of these buyers starts exhibiting, um, like there's a financing contingency, you know, we smell anything that would prevent this from like there being high certainty to close, they're gone. Um, and so that inflection point that you're talking about,

[00:14:19] they're really like when we picked 132, all 132 could close. They were all qualified, um, have been vetted over time, et cetera. Um, and so it's just this, like we knew this is going to be a really cool nuance to talk about, um, in this transaction. Like we had a lot of bids, we had more

[00:14:44] really quality bids for Mike's business to be a platform. If you think about it, it's at five of EBITDA, very rare size, all organic, um, no kind of mess from acquisitions. You have a very quality management team. The management team has stock in, in the business. Um, like this has platform

[00:15:08] written all over it or back in the day, like five of EBITDA. This is bigger than a lot of the platforms in 2020 or three of EBITDA. So this, like, this is just an exceptional, um, asset. And it, it really, as those bids came in, we didn't push the platform ones to try to go, you know, give us a better offer,

[00:15:33] give us a better offer, um, after the first bid, because we knew that really, as Mike was kind of sorting through everything, he was really steering us towards, I'm re I'm very attracted to this, you know, to this buyer where I would be an add on, um, for it. Gotcha. I'm following. So I want to get a little sense of the market out there right now. I know you're one of the guys who really tracks this

[00:15:59] more than anybody. I know your team did a recent Q2 update showing 22 MSPs likely to come to market in 2026. And that's up from 17, uh, according to Drake stars, Q1, 2026 MSP market report, MNA activity came in at 120 plus transactions in Q1 alone. And it does look like private equities got a lot of dry powder sitting on the, on the sidelines here, you know, that they are ready to go with them bullish

[00:16:26] on deal flow, 90% anticipating deal flow remaining steady or increasing. Now I'm really curious that you've got 22 MSPs. Tell me like what's the, what's in there? Are those companies coming to market because the market's good because they're ready because something shifted in the founders? Like, like who's in that batch? Yeah. So it's when you hear those numbers to, um, market numbers that are cited,

[00:16:53] 40% of that is us. And, um, you know, we have, uh, a London, we also have, um, an Ireland, um, you know, like staff employees kind of, uh, working on transactions. There's a lot, um, a lot more, you know, we've had more transactions start to happen in your Australia, um, a lot more

[00:17:18] in Europe and our, that number that I'm talking about is just focused on the U S I think there's, um, a lot of frictional costs in doing cross border M and a, we, we worked on one that was, uh, um, 15 MSPs into one and it was cross border. And I think those are not, um, I don't, I don't think

[00:17:43] that's highest and best use of our time. Uh, I think the, we can be most effective kind of the, um, you know, we have teams in different countries. The team that I work with is North America focused, um, that 20 really, um, call it 20 or so. Those are, you know, everybody is exposed to, um,

[00:18:08] different communities. Um, you know, our, our MSP communities that we're involved with, um, perpetually, that's a number coming from us with live conversations with founder CEOs that are saying they would, they would transact, uh, this year. Um, the number can also have some, and my number that

[00:18:30] I'm giving, they're all candidates for private equity to be involved in the transaction. Um, the numbers, some of the numbers that are given, you know, globally and also in the U S are private to private. And that's kind of a whole nother, you know, that's just a whole nother beast. I, I really don't think a lot of those are a great idea unless they're in the same, um, peer groups

[00:18:57] or just some incredible peer group communities. I think if they're in similar peer groups, those can work out more often than not, but it's, you know, it's definitely, it's an acquired taste to be out there buying private to private without any money. Like these are kind of like no down payment, um, houses, but, you know, but, but MSPs and kind of working out how do you pay somebody that's retiring?

[00:19:25] How do you keep them? Um, you know, how do you give them money, et cetera? Gotcha. And I, I curious sort of, you know, that, that when you think about the scale of that, let me get a little bit of staging, please. I would think on the say, cause you typically look at organizations that have like, you know, two, two, $3 million in each to the bottom line, right? I would think you can do M and a that looks a little bit more like that with private,

[00:19:51] with private to private, as you describe it, sub that space. So for example, $2 million operators coming together and they might go to the bank. I'm trying to tear that market. Can you give us a little bit of like your sense of the way the different tiers look? Totally. Um, you get a really liquid, I like to just call it a liquid asset MSP when it hits five of

[00:20:13] revenue, um, and call it a million of EBITDA. Like that's big enough that it will, you know, it, it may really, there's so many PE backed platforms are 102, like in the U S at last count that five of EBITDA. I mean, five of revenue, one of EBITDA that can be helpful to somebody from a geographic

[00:20:37] perspective. Um, it might have a vertical that they're good at that. So when you get to that size, you're not going to go private to private unless it's like a peer group member. Um, but we'll, you know, smaller than that size, um, you know, I've heard from one of the, uh, large consolidators

[00:20:59] that they've raised their minimum amount of revenue to 3 million of revenue. And you figure at 20% EBITDA, that's like 600K, 500K has also kind of been a minimum threshold for a private equity buyer. So anything that's below that, anything below three of revenue, um, and 500K of EBITDA, the private

[00:21:26] equity group is trying to bounce when it sees it, it's trying to bounce on and find something else that would be bigger because the amount of, uh, time that they'll spend on it, it like, it's just, it'll take the same amount of time to acquire a million five as it will a 500,000. Gotcha. I think that, but that, uh, the interesting thing about that is, is for those operators that may be wanting to move organic, to grow organically through smaller acquisitions in that space or bulk up

[00:21:55] because part of their plan is to then eventually exit at the size you talk about, that space is going to look a little bit different than the one we've been talking about. Is that a fair kind of separation? Very, very. And you really have to, you know, just kind of like catapult to five of revenue. And if it's two that are 2.5 of revenue, they combine together, they need to kind of

[00:22:18] that digest, um, and get integrated before they're really counted as a five of revenue. Gotcha. Okay. Well, I'm going to take a quick break. And when we get back, I want to talk a little bit about what all this M and a narrative means for operators who aren't planning to sell right after this. The SMB online conference is June 23rd through 25th, and registration is open now three days of practitioner focused sessions, pricing, M and a,

[00:22:46] AI, private equity, service delivery, no vendor speakers, no fluff. The theme is profitable is enough. If that resonates, you should be there. Small Biz Thoughts community members get in free. Everyone else, $399 at SMB online conference.com. So I want to ask you for something I've been working on directly and thinking about from the

[00:23:13] operator side. I recently published a newsletter piece where I made the argument that an 80% MRR target that's been circulating in the channel was really designed for deal sheets, not for operators who are building businesses. And in fact, service leadership data points to running closer to 60-40 being really helpful because the professional services component funds growth, it deepens relationships,

[00:23:37] and it keeps those businesses financially flexible. Some of my concern is that a lot of the advice flowing to operators right now might be generated by people whose incentives are oriented toward the transactions, not necessarily toward helping an operator who may never sell build their own healthy, durable business. So I kind of want to ask you this, when you advise MSP operators, the ones who are

[00:24:02] three to five years from potentially selling, what advice do you give them that's good for them as operators, then also good for their exit? I'm 100% in your camp. I think 60%, I think 60% sounds great, and a 20 product and 20 consulting. And I have,

[00:24:24] I've never been asked this before, and I've never said it. There is no, I've never seen a buyer offer a premium or a discount 4% recurring. I have seen that a premium all day long for organic growth. If you can show new logo, not your existing customers, but new net new logos, that's I think where you,

[00:24:50] if we're beating the drum, trying to help people know what's really going to drive value, you're right. It's not getting them to 80% or 90 or 100, because they're really serving. I think that's interesting. You know, in each of these different verticals, they can service the way to remain, you know, kind of to have great retention, be sticky is to serve those customers.

[00:25:17] And in each vertical, that may be different. And it may not be, it may not fit in the, you know, square of, this has got to be 80% recurring. You're totally right. Okay, cool. Well, I, I, I, I, I, I, I know it affects value. All of us do like intuitively, like SaaS companies, historically forget about what's happened since Anthropic

[00:25:47] in SaaS apocalypse. But historically, SaaS had 100% recurring and that's why it had a higher value, as long as the retention was there. But I, I love our business model of, you know, even a 70, 15, 15, but 60, 20, 20, just don't ever go below 50. Because at fit, when they go below 50,

[00:26:14] like we, we worked with somebody, another M&A advisor couldn't sell it, referred it to us. And they had a project that for a hospital had just, you know, gone crazy. And it was no longer 50% revenue. And 100% of our 225 buyers drop off when your revenue goes below 50,

[00:26:41] because it's going to take the mothership down when they acquire it. So he was literally at retirement age, great business, thinks everything's going great with, you know, this project revenue that just had a creep that totally sidelined him from a transaction for, I haven't talked to him, but it was, it was like two, three years ago.

[00:27:07] Gotcha. Well, the last question is, as we wrap up our time, because you're always so much fun to talk to on these things. Like, so I've been building out a bit of the argument that the consolidation at the top and the formation of the larger companies are, you know, because like likes to buy from like, you know, big companies buy from big companies, medium from medium size, that that consolidation is actually also going to create formation at the bottom. That because as the companies get bigger, as the rollups become bigger, they actually do lose some of their small customer

[00:27:36] orientation and independent operators are going to be able to fill that gap. You've been doing this long enough. Are you seeing that dynamic in the deal flow? Are there companies in the pipeline that like existed specifically because a PE backed rollup created a void they moved into? Yeah. A company like a buyer, which shall not be named, basically went to $5,000 minimum revenue per

[00:28:05] customer per month. And when they acquired the asset, everything below five, they get rid of, they farm it over to somebody else. And some people see that as like, oh, private equity bought it and it is no longer like they're not doing things well and they're losing these customers. And it's like, no, they don't want they as they keep getting bigger, like you're describing their business model, they keep moving up

[00:28:34] market and they're looking for homes for that other, you know, for the other businesses, for the other customer. So, so there is, there's actually, so there is opportunity here as well for smaller operators to, to, to move into that. I like finding all the different ways that we can, uh, find opportunity in this. In fact, go like when, and when a large acquirer, like MSP should go build a relationship with a large

[00:29:02] acquirer and say, would love to take over your small, um, you know, anything that's 2,500 a month or below or something that's, and they will gladly like the person that gets the responsibility to have to divest all those. That's a, I mean, it's not fun. So there, right there is the nugget of wisdom. You can, you can literally work with, with the larger companies and take the customers that they,

[00:29:30] that are a particular size simply because they're drawing a line really insightful there. Well, Abram, I want to make sure people can, can reach out. Where can people find your work and get in touch with you if they're interested in continuing the conversation? Sure. Just, uh, abraham.garver at focusbankers.com, um, or Abraham and just search for MSPs. I'll probably pop up. You'll come right up because you are always in the mix of these conversations. Abram, this is so much fun. Thanks

[00:29:58] for joining me today. Thank you. Thanks Dave. Thanks Sharon. And I want to thank our sponsors, ABC solutions. If you're running an MSP and struggling to get clean financial visibility, that's profitability by client or service line performance, or just accurate books. They focus specifically on accounting for managed service providers and IT firms. They're at abcsolvesit.com. And rhythms, if connectivity reliability is still a constraint, especially in edge environments for

[00:30:25] distributed teams, rhythms delivers 5g solutions designed for MSP use cases where uptime and coverage actually matter. More on them at r-y-t-h-m-z.com. Your rhythms. Business of tech is free if you want to stay informed. If you want to actually understand what's changing and make better decisions because of it, that's what business of tech plus is built for. Details are at businessof.tech.com.

[00:30:52] If you're listening to the recording and have a question, send it in at question at mspradio.com or put it in the comments below on YouTube. Thanks for joining me and I will see you next time.

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