Preparing Your MSP for M&A (Shared by a $100M+ MSP)

[00:00:00] What's the one challenge that you see after the acquisition?

[00:00:03] I would encourage everyone to be thinking very clearly and specifically about what it is that you would like to do following a transaction for your business.

[00:00:12] Do you really want to stay on? If you do, what would you like to be doing?

[00:00:15] Or are you comfortable and keenly interested and prefer to go off and either retire or go off to other business adventures, whatever it might be?

[00:00:24] But having clarity on that answer is tremendously important because it can help you select who's going to be the right home for your business.

[00:00:36] Hey guys, Damien Stevens, host of MSP Mindset.

[00:00:40] Today, we have a special edition where we recorded at Build IT Live 2024 in Orlando, Florida.

[00:00:47] Special thank you to Sonny and to Calm for allowing us to show up and interview such amazing MSPs.

[00:00:54] And thank you to the whole IT by Design team.

[00:00:57] And on today's episode, I get to interview Chris at Intiba, who's a top 30 MSP and he's their chief M&A officer.

[00:01:06] If you want to learn more about M&A, don't miss out on our conversation today.

[00:01:11] Chris, thanks for joining me.

[00:01:14] What I would love to get is your thoughts.

[00:01:16] Everybody I'm talking to, they are either acquiring, looking to be acquired, trying to figure out what happens if I don't do one or the other.

[00:01:25] And I'd love to get your thoughts on the space right now.

[00:01:30] Well, I guess, first of all, thank you very much for having me.

[00:01:32] And second question is, how much time do you have?

[00:01:35] Because, you know, you could go on and on with this question.

[00:01:38] But I think what's most important to talk about is just the fact that, you know, this business is such an attractive place to invest or build a business in because it's got a high degree of recurring revenue that's attributed to it.

[00:01:50] And, you know, that has wisened up a lot of folks outside of our industry to want to be more interested in our space.

[00:01:58] And so I think the other thing to be mindful of is that because our industry is so fractured across the U.S., tens of thousands of MSPs across the U.S. alone, there really is a beautiful opportunity to bring economies of scale together within our industry.

[00:02:17] And I think the other thing that's important to acknowledge is we're at a near inflection point from a demographic perspective with a lot of MSP owners that are considering retiring, transacting, transitioning some sort of change in their practice in the next couple of years.

[00:02:33] And so I think those factors come together into the soup to make it a very compelling place to want to transact.

[00:02:42] I think the other thing that I would mention is that we provide technology, but it is becoming increasingly commodified in how it is provided or delivered to clients.

[00:02:52] And so needing to figure out a way to stay always ahead of that curve becomes more and more of a challenge when you are a small guy competing against larger organizations.

[00:03:04] Yeah. Yeah, you have economies of scale.

[00:03:07] Do you think between demographics, capital availability, awareness of industry, all the soup, is there a tipping point you think that we're going to just like this is going to rapidly accelerate one day?

[00:03:18] Or do you think it's going to be more exponential or more linear?

[00:03:21] I think what's happening now is that you're starting to see M&A occurring at different sized businesses.

[00:03:28] So it's, you know, the 500K revenue MSPs coming together.

[00:03:33] It's the $5 million MSPs coming together.

[00:03:35] It is the 100 plus million dollar MSPs looking to come together.

[00:03:39] And I think that increasing activity at all levels of the industry is something that I've seen come about over the last couple of years.

[00:03:48] And I do think, again, because of the fractured nature of the industry, there's plenty of runway to go because me as a, you know, at Antiva, we're $175 million in revenue, give or take.

[00:03:58] Like, it doesn't make sense for me to be buying 500K MSPs.

[00:04:03] But there could be smaller organizations out there that are $4 or $5 million.

[00:04:08] They can do a wonderful job of consolidating at that smaller level.

[00:04:12] And then it's like you just sort of keep coming up the scale through the course of the process.

[00:04:18] So I think there's opportunities at all levels, which makes it really exciting and also gives people a sense of, though, like, I don't want to miss out on the fun here.

[00:04:27] Which is why you tend to see more and more activity and interest and awareness to talking about M&A at conferences, at events, on podcasts, just because folks don't want to feel like they're being left out in any way.

[00:04:40] Right, right.

[00:04:42] So what do you think that we talked about?

[00:04:45] What do you think the risk is about fear of being left out?

[00:04:48] It doesn't matter if you're at 500K or $5 million or $25 million, right?

[00:04:52] There is that fear that I need to go from $25 to $100 million through roll-ups or one way or the other.

[00:05:01] So how much validity do you think there is to that?

[00:05:05] Yeah, well, I think what it comes down to is you may start to see the stars in your eyes with the big dollar signs or whatever that may happen with other deals that are happening in this space.

[00:05:15] But you're not going to be successful in this practice if you're not delivering quality service to your clients, retaining your clients, building your client base, and offering them continually the upper echelon, the ahead-of-the-curve type capabilities.

[00:05:30] And so if you take your eye off the ball from that focus, then you may have stars in your eyes from a deal perspective, but you're running a mediocre MSP and no one's going to want to buy you.

[00:05:44] Or if they do, it's going to be at a suboptimal price to what you're hoping to get.

[00:05:48] So I think being able to remain laser-focused on client service is primarily important.

[00:05:55] Even in Antiva, we have our mission, our vision is to, we exist to grow each other.

[00:06:00] And technology is just the accelerator as we do so.

[00:06:04] Technology is like my happenstance.

[00:06:06] We focus on our clients.

[00:06:07] We focus on the growth and development of our people.

[00:06:09] And if we can do those things, then the rest takes care of itself.

[00:06:14] And then it becomes where folks are intrigued and excited to become part of our story or folks who want to join forces with Antiva.

[00:06:24] It only comes with us having the best reputation that we can within the industry.

[00:06:29] And that comes from delivering great service to our clients and being a phenomenal place where employees feel like they can really craft a career and grow and learn here than potentially elsewhere.

[00:06:43] Is there a sweet spot that you guys are looking for in the MSP space that since you are the M&A officer, is there a certain size or other qualifiers that you're looking for?

[00:06:52] Yeah, so it comes down to understanding of our business as it stands currently.

[00:06:58] So we're fortunate enough to be in 14 markets across the U.S., 14 geographies.

[00:07:04] And our desire is to really grow our majority presence in those markets.

[00:07:09] And, you know, there we'd love for a minimum threshold business to be a million dollars in EBITDA and up.

[00:07:19] And if it's in a new region or a new market for us, kind of two to three million dollars in EBITDA.

[00:07:25] But that's just one piece of the puzzle that's obviously important, but it's not the main, you know, gating item.

[00:07:32] There's other things like the revenue composition, majority recurring revenue, frankly, good and aligning culture and kind of people mindset that aligns closely with our values.

[00:07:43] And just, you know, a business that can, you know, come along, come along well with us.

[00:07:49] And if we can provide a scenario that helps address some of the challenges or issues that a small MSP owner is facing by becoming part of a larger business, then that's an additional value add for everyone.

[00:08:04] You know, we really strive to be a legacy defining brand for ourselves at Antiva, whereby, you know, these past 20 years that we've been in operation officially and longer than that, but beforehand unofficially.

[00:08:17] It's that focus on being a positive presence in our community that we serve across the U.S.

[00:08:25] And so we want to be able to partner with folks who share that same conviction and that same priority towards client first, employee first, and deliver great service first to their clients.

[00:08:36] And if they're on the same page, then that becomes an easier conversation to have.

[00:08:40] I like to think that the numbers, you know, your revenue, your EBITDA, your MRR percentage, like those are just almost check the boxes.

[00:08:48] And that if you can achieve those things, fantastic.

[00:08:52] But everything else needs to be in alignment in order for a transaction to be, you know, a positive place to get to.

[00:09:00] So there's almost the lagging indicators if you're doing the right things, right?

[00:09:04] Those matter, but those are almost the product of doing those right things.

[00:09:08] Correct. Correct. Yeah.

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[00:09:48] What's the number one challenge you see with, like, everybody, it seems like they get stars in their eyes.

[00:09:55] They see big numbers.

[00:09:56] What's the one challenge that you see when it comes to making these acquisitions after the acquisition?

[00:10:04] I think the biggest thing is you've had an owner who has built a business from nothing, who has spent their life's work on this business.

[00:10:12] It is, in large part, the vast majority of their entity or their professional entity.

[00:10:17] And transitioning that individual from being owner, decision maker, grand poobah, you know, the one who sits at the top of the heap to potentially just being an employee.

[00:10:29] Yeah.

[00:10:30] If you're planning to remain with a business.

[00:10:32] And that kind of transition can be a challenge.

[00:10:34] And so on the basis of that, I would encourage everyone to be thinking very clearly and specifically about what it is that you would like to do following a transaction for your business.

[00:10:45] Do you really want to stay on?

[00:10:46] If you do, what would you like to be doing?

[00:10:48] Or are you comfortable and keenly interested and prefer to go off and either retire or go off to other business adventures, whatever it might be?

[00:10:57] But having clarity on that answer is tremendously important because it can help you select who's going to be the right home for your business.

[00:11:05] Because the other thing that's great about our space is there's not one path that you need to take if you're going down the M&A route.

[00:11:10] There are a bunch of different types of buyers out there that afford you an opportunity to partner with someone that can best fit your needs and best help you achieve your goals.

[00:11:23] Whether that's financial, whether that's placement for your employees, placement for your clients, specific type of role or responsibility that you'd like to take on after the transaction.

[00:11:33] All those sorts of things should be weighing into your thought process as you're thinking about transitioning your business.

[00:11:41] And the last thing I would just say as an addendum is that it takes time to enact the sorts of changes in your business to get to a desired valuation or to think most clearly about what it is you'd like to do.

[00:11:55] So afford yourself the time to put yourself with the best foot forward.

[00:12:01] Because without that, you're going to be rushed into a process and you're not going to get the dollars you want.

[00:12:07] You're not going to sell to the person that you most want to partner up with.

[00:12:11] So give yourself the time to put yourself in that best place is incredibly important.

[00:12:16] If I'm an owner, what is that I need to do to put myself in that spot?

[00:12:22] Maybe it's mindset.

[00:12:24] Maybe it's a whole bunch of different things in the business to put it in the right place for optimum value.

[00:12:29] But what is that that I need to focus on?

[00:12:31] Yeah, it boils down to preparation.

[00:12:34] And preparation can go in a million different directions.

[00:12:37] But I think it's answering those first couple of questions first.

[00:12:40] It's what is it that you want to do after the transaction?

[00:12:43] Do you know what you want to transact at pricing-wise or value-wise?

[00:12:48] And then what are the things you can do from a hygiene perspective within your business to make it the brightest star out there for someone who might be interested in it?

[00:12:57] From a recurring revenue as a percentage of the business, from a margins perspective, client retention perspective, new logo growth perspective, employee retention perspective.

[00:13:09] Having all your reporting and documentation, your monthly financials organized and updated on a regular basis.

[00:13:16] Doing all those sorts of things from a preparatory perspective is tremendously important.

[00:13:21] So that if someone comes calling and they seem interesting, you're ready.

[00:13:25] You've got everything at your fingertips to draw on without having to feel like you need to scramble and figure something out.

[00:13:33] Because you also need to be running and continuing to grow your business while you're seeking to transact your business.

[00:13:38] Because no one wants to really buy a business that is plateauing or declining.

[00:13:44] People want to buy you on the up.

[00:13:46] So it's just lots of things to be thinking about.

[00:13:48] And again, why it can take some time to get yourself in that perfect spot.

[00:13:53] Last thing I want to ask for now is how long do I need to give myself?

[00:13:58] So I would recommend probably at minimum a year just to make sure you've got all your ducks in a row, everything sorted out.

[00:14:08] And sometimes if you're making changes within the business, it can take upwards of two or three years.

[00:14:12] Say you want to wholesale change or improve the client contracts that you have with your clients.

[00:14:18] Well, you're probably not going to preemptively put those in place before renewal time frame.

[00:14:22] And if you've got clients on annual or two-year or three-year time horizons, it can take a while to get that into place.

[00:14:30] Or it takes you a while to find the right sales individual or the right individual to lead your service desk.

[00:14:36] You know, you don't want to rush into those sorts of decisions.

[00:14:39] Because again, you're going to leave something on the table from what you're trying to get from a monetary perspective.

[00:14:45] I love that. I love that.

[00:14:47] Well, I know I'd love to ask you more questions, but I just appreciate you giving me the time at BuildIT Live.

[00:14:54] And thanks for being on MSP Mindset, Chris.

[00:14:56] Absolutely. Happy to be here and share a couple tidbits with everyone here.