Comments on: How Much Are MSPs Worth? http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/ Managed Services & Cloud Services Blog for VARs & MSPs Tue, 14 Feb 2012 04:20:53 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Joe Panettieri http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/comment-page-1/#comment-12813 Joe Panettieri Mon, 26 May 2008 15:07:35 +0000 http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/#comment-12813 Will: Thanks for piecing these metrics together. I agree: Roll-ups can get messy. Anybody else remember USWeb? MarchFirst? Disasters in the making. Will: Thanks for piecing these metrics together. I agree: Roll-ups can get messy. Anybody else remember USWeb? MarchFirst? Disasters in the making.

]]> By: Will Scott http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/comment-page-1/#comment-12745 Will Scott Mon, 26 May 2008 03:29:18 +0000 http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/#comment-12745 I have been watching this acquisitions in this space for a few years now, the transactions, where there is any kind of financial data available are a public company acquiring a private company - so we don’t know what else the company being acquired carries on it balance sheet; the Price / Earnings ratio doesn’t always tell the whole story – but there have been a number of managed services acquisitions several over the past 5 years that seem to indicate a trend. I break the deals down into 2 main categories – Economies of Scale acquisitions and Strategic Acquisitions. >> Economies of Scale Acquisitions When the company being acquired is being purchased for reasons to do the purchaser taking costs our of the company being acquired and driving economies of scale then transactions are around 0.5 to 1X revenue > EDS purchase of Loudcloud Managed Hosting – $65M for $75M revenue = 0.86 X > Navisite acquisition of Surebridge – $54M for $45M revenue = 1.2 X > Cognizant acquisition of Aimnet – $15M for $25M revenue = 0.6 X >> Strategic Acquisitions When the purchase is being made to augment a serious shortfall in the acquiring companies services portfolio or to gain a foothold in a adjacent market then it seems that the multiples that can be commanded increase to the 1.5 to 3 X Revenue range. > Verizon and Cybertrust - estimated $445M on $200M Revenue = 2.25 X > ATT acquisition of USI - $300M for appx $100m revenue = 3 X > Cisco acquisition of Netsolve - $95M for appx $40M of revenue = 2.4 X > Sun acquisition of Seven Space - $49M for est $30 M of revenues = 1.6 X There are a number of deals that have gone down over the past few years that it would be great to know the guts of to complete this picture – MCI and Totality & Getronics and Red Siren to name a couple. Also – if we could carve out the value that CDW placed on Berbees Managed Services or Insight placed on Calences Managed Services – this would be interesting to see. I am not sure that we can look at the HP / EDS deal as a pure Recurring Services Revenue deal and so not sure where there multiple fits into this picture – I would guess that a lot of EDS revenue was classic professional services non recurring revenue – which clearly gets a much lower valuation than annuity revenue. So I guess the (somewhat obvious) message - sell to someone who is needs your services for strategic reasons as opposed to a roll up. I have been watching this acquisitions in this space for a few years now, the transactions, where there is any kind of financial data available are a public company acquiring a private company – so we don’t know what else the company being acquired carries on it balance sheet; the Price / Earnings ratio doesn’t always tell the whole story – but there have been a number of managed services acquisitions several over the past 5 years that seem to indicate a trend. I break the deals down into 2 main categories – Economies of Scale acquisitions and Strategic Acquisitions.

>> Economies of Scale Acquisitions

When the company being acquired is being purchased for reasons to do the purchaser taking costs our of the company being acquired and driving economies of scale then transactions are around 0.5 to 1X revenue

> EDS purchase of Loudcloud Managed Hosting – $65M for $75M revenue = 0.86 X
> Navisite acquisition of Surebridge – $54M for $45M revenue = 1.2 X
> Cognizant acquisition of Aimnet – $15M for $25M revenue = 0.6 X

>> Strategic Acquisitions

When the purchase is being made to augment a serious shortfall in the acquiring companies services portfolio or to gain a foothold in a adjacent market then it seems that the multiples that can be commanded increase to the 1.5 to 3 X Revenue range.

> Verizon and Cybertrust – estimated $445M on $200M Revenue = 2.25 X
> ATT acquisition of USI – $300M for appx $100m revenue = 3 X
> Cisco acquisition of Netsolve – $95M for appx $40M of revenue = 2.4 X
> Sun acquisition of Seven Space – $49M for est $30 M of revenues = 1.6 X

There are a number of deals that have gone down over the past few years that it would be great to know the guts of to complete this picture – MCI and Totality & Getronics and Red Siren to name a couple. Also – if we could carve out the value that CDW placed on Berbees Managed Services or Insight placed on Calences Managed Services – this would be interesting to see.

I am not sure that we can look at the HP / EDS deal as a pure Recurring Services Revenue deal and so not sure where there multiple fits into this picture – I would guess that a lot of EDS revenue was classic professional services non recurring revenue – which clearly gets a much lower valuation than annuity revenue.

So I guess the (somewhat obvious) message – sell to someone who is needs your services for strategic reasons as opposed to a roll up.

]]> By: Nate http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/comment-page-1/#comment-10154 Nate Wed, 14 May 2008 21:55:26 +0000 http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/#comment-10154 If you can crack the $10 million mark on annual managed revenue, selling into midsize companies rather than mom and pop businesses, you can get nearly a 2X multiple on revenue in my experience. If you can crack the $10 million mark on annual managed revenue, selling into midsize companies rather than mom and pop businesses, you can get nearly a 2X multiple on revenue in my experience.

]]> By: Joe Panettieri http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/comment-page-1/#comment-9996 Joe Panettieri Wed, 14 May 2008 05:43:12 +0000 http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/#comment-9996 Charles: Very interesting perspective. So, reader feedback from you and others suggests that MSP valuations are anywhere from 1 to 1.5 times revenue. Curious to see if/how that changes once big technology companies begin to evaluate regional MSPs for acquisition. Charles: Very interesting perspective. So, reader feedback from you and others suggests that MSP valuations are anywhere from 1 to 1.5 times revenue. Curious to see if/how that changes once big technology companies begin to evaluate regional MSPs for acquisition.

]]> By: cwittiker http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/comment-page-1/#comment-9878 cwittiker Tue, 13 May 2008 20:56:38 +0000 http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/#comment-9878 We shopped our MSP practice in January 2008. We are running at 1.8 million annually (98 percent reoccurring) and the best offer we received (out of 2 offers) was around 1.2 times revenue. Charles We shopped our MSP practice in January 2008. We are running at 1.8 million annually (98 percent reoccurring) and the best offer we received (out of 2 offers) was around 1.2 times revenue.

Charles

]]> By: Joe Panettieri http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/comment-page-1/#comment-9849 Joe Panettieri Tue, 13 May 2008 17:46:33 +0000 http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/#comment-9849 Hi Vincent, Curious if you work for Martin Wolf Securities or if you have done business with them? I've interviewed Marty a few times for articles over the years and -- as you point out -- he is a good source for M&A information. But I hope you can also tell our readers how you came across him? Have you sold a business? Purchased a business? Any key learnings to share? Hi Vincent,

Curious if you work for Martin Wolf Securities or if you have done business with them? I’ve interviewed Marty a few times for articles over the years and — as you point out — he is a good source for M&A information. But I hope you can also tell our readers how you came across him? Have you sold a business? Purchased a business? Any key learnings to share?

]]> By: Vincent http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/comment-page-1/#comment-9845 Vincent Tue, 13 May 2008 17:24:18 +0000 http://www.mspmentor.net/2008/05/13/how-much-are-msps-worth/#comment-9845 The best way to check your company's valuation is to have the business appraised or attend an event hosted by Martin Wolf Securities (www.martinwolf.com). They specialize in channel M&As. The best way to check your company’s valuation is to have the business appraised or attend an event hosted by Martin Wolf Securities (www.martinwolf.com). They specialize in channel M&As.

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