Welcome back to RKCA’s IT MSP newsletter. In this installment we will look into the various types of buyers you may encounter during the process of going to market and selling an IT MSP business. These typically can be broken down into three categories: Financial, Financial Backed-Strategic, and Strategic. We have also included a snapshot of the transactions that took place in Q1’24 for the industry(1).
Buckets of Buyers
An IT MSP business owner being contacted weekly by interested buyers is as predictable as Evan McPherson lining up a game winning field goal or Messi finding the back of the net. If you’re running a successful company in this industry, fielding buyers’ calls is a part of your weekly routine. The most likely occurrence is a private equity firm or a private-equity backed strategic company looking to connect via email or phone, but there are other buyer types in the mix as well. While we see a lot of buyer outreach in this industry, our intent in this newsletter is to provide you with additional color on each of the buyer types. What we’ve outlined below are generalities but should provide you with a foundation to make an assessment if a particular buyer type is appropriate for you as you contemplate a sale.
Financial Buyers: In our experience, the most common type of buyers to come across when running a process, financial buyers are private equity (PE) firms or family offices who are looking to establish a platform in the IT MSP industry. A platform company is the initial investment made by these buyers within a specific industry with the intention of using the company as a foundation for further growth.
PE buyers do transactions for a living, and deal in companies to generate return for investors over a particular timeline. These buyers are most likely going to want ownership and key executives to remain with the business while retaining a sizeable equity position/stake (rollover equity). Financial buyers typically operate out of a dedicated fund and many have a thesis around the IT MSP industry and are looking to establish a platform.
Strategics: These buyers are standalone companies that can be either private or public. These can include larger MSPs, or independent companies in other industries who are looking at MSPs for one reason or another. As an example, RKCA closed a sell-side process for Homefield IT, where the company was acquired by an insurance company – Acrisure. These buyers tend to move very intentionally, looking to acquire companies based on strategic fit and synergies. Given the strategic buyer typically has industry expertise and a corporate structure, there may be changes in headcount due to an executive team and back-office staff already being in place. The strategic buyer is also less likely to require an equity roll of proceeds compared to the typical financial buyer.
Financial-Backed Strategics: Buyers in this category take the best from both worlds of the previous buckets. These are platforms that have already been established by financial buyers and are now looking for add-on acquisitions. An add on acquisition typically refers to the purchase of a smaller sized company by an existing company (platform) where the acquired company is integrated into the existing portfolio company thereby enhancing its overall value.
These buyers are typically operating out of a fund and due to their platform investment, possess the industry expertise of a strategic. Headcount changes are possible, similar to with a strategic buyer. Sellers may have options around a continued investment via equity roll and continued involvement or may decide to move on after a transition period. With the platform already established and inside the PE firms’ hold period, it will likely lead to a much quicker second sale or “second bite of the apple” compared to the timeline around an initial platform investment.
There are many active buyers in the IT MSP space but most can be categorized into the three main buckets above. Each buyer type have their own pros and cons, but there are generalities you often see in each bucket. When selling your IT MSP company, it is extremely important to understand the different attributes of each buyer type and ensuring that you have multiples offers to choose from to ensure the best possible deal.
(1) Transactions tracked via ChannelE2E.com as of April 15, 2024
Recent Transactions
