How To Purchase an MSP with No Money Down

[00:00:00] .

[00:00:01] Welcome to the SMB Community Podcast with hosts Amy Babinczek, James Kernan and Karl Palachuk,

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[00:01:15] Hey everybody, welcome back to the SMB Community Podcast. This is James Kernan with Kernan

[00:01:23] Consulting and I'm here with my good friend Amy Babinczek. Hey Amy, good morning.

[00:01:27] Hey, good morning James. Great to see you.

[00:01:30] Good to see you. Good to see you. Fun as always. A lot of stuff in the news

[00:01:34] to cover. Let's first start off with the question of the week. So we got a couple

[00:01:40] questions but the first one that came in I thought was a really interesting one and

[00:01:46] it has a couple different meanings but the question that came in was how do you buy

[00:01:50] another MSP with no money down? So I know you've got some M&A experience so I'll

[00:01:57] let you go first but how do you buy another MSP with no money down?

[00:02:02] So my, I don't know what your experience is with this James but I did buy books of

[00:02:10] clients which is really what you're talking about if you don't put money down. You

[00:02:16] know in my MSP I did four times I bought groups of clients from other MSPs that

[00:02:24] were you know going out of business, retiring, you know whatever their situations

[00:02:30] were. One was a firm that just decided they didn't want to be an MSP anymore.

[00:02:39] They were doing SQL admin work and they had these MSP clients didn't really fit

[00:02:44] with their direction so anyway in each case there was groups of clients and the

[00:02:52] technique that I used didn't require any money down. All I agreed to was to pay

[00:02:59] them a percentage of their revenues from those clients that they were giving me

[00:03:04] over the next two year period so I gave them a percentage for two years and

[00:03:09] then after that the clients were mine and I did require that they help with

[00:03:17] the transition you know just like you did if you were buying a company. So they

[00:03:24] went with me to sign the new contracts and you know introduce me and get that

[00:03:29] warm endorsement to the new company that's going to be managing you and

[00:03:35] that worked out really really well so that's one technique you can use.

[00:03:41] What do you got James? Well there's, to me there are kind of two parts to

[00:03:47] this. One what came to me first was exactly what you said when you're buying

[00:03:51] a book of business it's normally a smaller MSP and think of it like a

[00:03:56] either an earn out or a referral fee you know whatever you want to call it

[00:04:01] but it's pretty simple and you just pay a percentage over a

[00:04:05] period of time and I'm curious are you able to share what type did you

[00:04:10] the percentage was it on revenue was or was it on gross profit? I did it

[00:04:16] on actual collections made so it was the it was the revenue but it was actual

[00:04:24] collected revenue for the period. Yep no that's smart that's smart so yeah

[00:04:30] that's part one another part that it could mean I'm not sure if this was

[00:04:36] the real question but if you're buying another business and you put together

[00:04:41] you structure your deal but you're talking about putting your own money

[00:04:47] down or someone else's money down you could go to the SBA. SBA in 2024 changed

[00:04:54] the requirements they'll lend up to a hundred percent of the money now so

[00:05:00] you could use the other company's assets and cash flow to get a

[00:05:05] hundred percent loan if it calculates properly then you don't have

[00:05:10] to put any of your own money down it's basically you know you're borrowing

[00:05:14] money from the SBA and you know they'll they'll put money down and then you

[00:05:19] pay them back so there's a another option there I just did a transaction

[00:05:25] just like that believe it or not for a company in Florida and just

[00:05:31] just this past month so that that worked out really well but yeah I

[00:05:35] think for those of you that are thinking about you know mergers acquisitions as a

[00:05:40] growth strategy just like Amy said you know there's a lot of people that want

[00:05:44] to get out of the business just want to sell their book of business maybe a

[00:05:48] technician or two or more will come along with that and they just want

[00:05:52] you to hire them you know the more of that type of stuff you can do the

[00:05:56] better I know it worked out well for you guys Amy. Yeah there are there are a

[00:06:00] lot of people retiring out of the industry right now so there are there's

[00:06:05] quite a quite a lot of opportunity out there to pick up businesses for some

[00:06:10] reasonable terms. So some of the newsworthy items that we've got so

[00:06:16] obviously the big Kaseya Connect Conference was just happened and

[00:06:20] their big super top-secret announcement that Fred came out with was the

[00:06:26] Kaseya 365 subscription it was announced at $3.99 a seat and that

[00:06:31] comes without MDR but if you want that it's another dollar and seventy five cent

[00:06:36] for endpoint so it's really a bundled product you know the Kaseya Connect or

[00:06:43] the Kaseya 365 is is there they're bundled all-in-one product so it's

[00:06:50] pretty pretty low price point for what you get I don't know if you heard

[00:06:55] anything else about the the Kaseya Conference or that big announcement did

[00:06:59] you? You know the groups the groups that I'm in tend to not be Kaseya folks

[00:07:06] so everything I heard was just you know from the Kaseya haters and it's

[00:07:11] not worth repeating but I mean it's you know it's just not it's like we

[00:07:17] get it you don't like Kaseya you have your own preference you know the

[00:07:21] rest of us we don't really care right but yeah that's a it's a very

[00:07:25] low price I will say I predicted this announcement. Nailed it and yeah so it's

[00:07:34] a it's a very it's a very low price point I think that we will see the

[00:07:39] others follow suit it makes sense they're gonna have to do something to

[00:07:45] compete with this of the non Kaseya haters out there I did hear from

[00:07:51] people saying that they are looking forward to switching to this because

[00:07:55] they're gonna be saving a lot of money so it's interesting to see what this

[00:08:01] is gonna do with Kaseya's bottom line right they'll be making each less from

[00:08:07] each seat but they obviously think that this is going to vastly increase

[00:08:11] the number of seats that they're gonna sell. Yeah I've heard from a

[00:08:16] competitive standpoint there's rumblings of other you know price war

[00:08:20] other price adjustments so that will be interesting to see how that plays out

[00:08:25] so anyway big big news from Kaseya something else that popped up that

[00:08:30] really caught my eye is PACS 8 the some leadership changes there looks

[00:08:36] like their CEO has stepped aside and he was the CEO appointed in 2021 I

[00:08:45] thought but they had gotten a lot of money back then and Scott Chasson who I

[00:08:53] guess was their CTO so I guess he's taking over the the CEO role and he's

[00:09:02] going to kind of run the reins but when you see leadership changes like

[00:09:07] that to me it's a big red flag it's like okay well they're not meeting

[00:09:11] expectations so they need to make some leadership changes is that is that

[00:09:15] what you feel? Yeah something something is afoot at PACS 8 you know

[00:09:20] they no details have come out yet but something's definitely going on

[00:09:25] replacing the CEO with the guy that was in the CTO position is

[00:09:31] interesting you know I know from a vendor perspective you know PACS 8's

[00:09:37] got that marketplace and that there's been a huge backlog of vendors that

[00:09:45] are trying to get into that marketplace and have been waiting for a year been

[00:09:50] not able to get in yet so technology wise it seems like there's some issues

[00:09:57] but the CTO has been elevated so maybe the issue was above him I don't

[00:10:03] know I don't know you know that's wild speculation so who knows but

[00:10:08] yeah definitely something to to keep an eye out because you're right it's

[00:10:15] been long enough since PACS 8 raised money they will have burned through it by

[00:10:20] now yeah we'll see what happens yeah I'm thinking something like that as well

[00:10:26] so time for a change so that'll be interesting so keep your eye on PACS

[00:10:29] 8 and then and then we were just talking earlier there was an article

[00:10:35] about AI fighter jets for the US military being tested successfully that

[00:10:41] was a pretty cool news article what what are your thoughts on that that's yeah

[00:10:46] so they've got AI controlled fighter jets doing dog fights live over

[00:10:53] California what could go wrong exactly that's a safe yeah people are very very

[00:11:01] concerned about the other you know coming of self-driving semi trucks on

[00:11:10] the road doing their deliveries to me there is so much it's such an easier

[00:11:19] job to get a semi truck to roll down the highway than it is to get a plane

[00:11:25] to do dog fighting you know potentially halfway across the planet

[00:11:30] and what is that what does that mean and and then there to me there's

[00:11:36] even a moral question on the planes because that's a war activity and you

[00:11:44] know so we're willing to put our planes at risk but we're not willing

[00:11:48] to put our people at risk while we're out there putting other people's

[00:11:54] people at risk it's just a this complex issue but the technology is

[00:12:02] amazing yeah I mean so we're exactly where I was gonna go with that the

[00:12:07] technology is unbelievable that it's here I mean Skynet is here right

[00:12:11] Skynet is great keep talking about that with all the AI stuff going on but

[00:12:16] pretty amazing that you can fly fighter jets in a in a dogfight like

[00:12:22] that so and they won't hallucinate right you still have to have the top

[00:12:31] music playing in the background yeah but you know what they they also they don't

[00:12:36] get subject to to the forces that make pilots pass out you know that AI

[00:12:45] that doesn't happen to AI so I imagine they're gonna be able to make some

[00:12:51] twists and turns that no human has been able to tolerate to this point

[00:12:55] yeah yeah good point good point now so interesting stuff in the news and then

[00:13:00] I think there's a new service coming out from Twitter or X yeah it's called

[00:13:06] a it's called grok g-r-o-k and it's a news service but it's a new way of

[00:13:15] thinking about news right and you and I have talked here about how people get

[00:13:19] their news from social media these days and so what Twitter is doing is

[00:13:24] using AI this AI is everywhere in all things today we're using AI to find a

[00:13:34] trending news article and then based on the comments and posts that other

[00:13:42] people using Twitter have made to build build build it basically build a new

[00:13:49] based on those comments and tweets they said there will not be any sources or

[00:13:58] references posted in that news service but that they plan to build that in

[00:14:04] later so that's unfortunate I would like them to see them build that in

[00:14:11] from the get-go so people know where this information is coming from you

[00:14:15] you'd think that would be top of the list from a priority standpoint yeah all

[00:14:19] the other you know news services they're posting their sources now as

[00:14:24] they're as they're using as they're using AI and tools to gather you know

[00:14:30] gather information for various places and they're putting those there so I

[00:14:34] wish Twitter was doing that from the get-go but I wonder if there's

[00:14:39] potentially a privacy issue because their sources are going to be you and

[00:14:43] me hey yeah interesting interesting well all sorts of stuff in the news so

[00:14:52] so what what else are you do you have coming up here for the rest of the

[00:14:57] quarter are you on the road at all um you know in June I'm gonna be down

[00:15:01] at Channel Pro and then I'm gonna be also at your mastermind event so a

[00:15:06] couple things going on in in June may I have mentioned before I keep that

[00:15:13] intentionally quiet because it's the launching of boat season and there's a

[00:15:18] lot of activities to do and so yeah so being a little little on the quiet

[00:15:24] side but that's intentional and I'm happy with it June will kick off again

[00:15:28] with those couple of events and then summer is gonna come around and I'm

[00:15:33] looking to going on vacations this summer I hope everybody listening to us

[00:15:38] is you know that you know the other there are industry events all summer

[00:15:44] long but you know be sure to take some time for yourself as well you

[00:15:48] know fall is really when conference season gets going right late August

[00:15:53] September October time frame so you know take your take your time away now

[00:15:59] and save yourself before you gear up for those those fall events coming in

[00:16:05] yeah exactly exactly yep and then the weather allowed for me to get out on

[00:16:13] the boat this weekend so nice kind of fun the first official outing you know

[00:16:19] we dropped the boat in about a week ago but it's just been you know that

[00:16:23] cooled off and the it's been raining all week long here in the Midwest but

[00:16:27] anyway we had some nice weather this weekend so it's great getting out

[00:16:31] yeah we've had so much rain and still a bit my boat is in the far north so it's

[00:16:38] still a little bit cool but you know we got got the sailboat launched and

[00:16:43] actually showed it to another potential buyer and that potential buyer is now

[00:16:50] out looking for boat slips so maybe that's a good sign that there we can

[00:16:54] see an offer pretty soon but yeah that's a great sign yeah optimistic anyway

[00:16:59] they had a couple people actually making the drive out to take a look at

[00:17:04] it so that's that's a good thing some okay well I think that is gonna be it

[00:17:09] for today we're out of time so everybody thanks for tuning in on the

[00:17:12] SMB community podcast hey and friendly reminder we'd love to hear from you

[00:17:16] so any questions that you want Amy and I to dig into and talk about

[00:17:20] banter back and forth we are happy to debate that for you just send any

[00:17:25] questions or comments that you have over to James at Kern and consulting

[00:17:29] calm and we will see everybody back next week take care everybody today's

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