A managed service provider in Southern Texas apparently has retained Sarlex Partners to help sell the company. Sarlex positions itself as a strategic consulting firm specializing in mergers and acquisitions. I wonder: Will more and more MSPs turn to advisors and deal brokers to accelerate their M&A activity?
Sarlex Partners LLC certainly isn’t alone in the MSP Merger and Acquisition advisor space. Two other examples:
- M&A Forum Chairman Martin Wolf has been involved in roughly 80 IT and solution provider M&A transactions over the past 11 years.
- The MSPAlliance will offer M&A-related content at the MSPWorld Conference (Nov. 12-13, Las Vegas). And MSPAlliance President Charles Weaver has set up Weaver & Associates to advise MSPs on a range of issues including mergers and acquisitions.
Readers Weigh In
Back on Sept. 3, I suggested that the MSP merger and acquisition industry was a bit slow this year because there were too many sellers and too few buyers. But readers have since posted a range of comments — a few of which disagreed with some of my views.
Shortly after the post, Sarlex Managing Partner Michael W. Hines reached out to me, disclosing that he was representing a Southern Texas MSP that was seeking a buyer. His note included the following line:
“…if there is anyone looking at expansion, in South Texas, there is an opportunity. They can email me for further information. mhines [at] sarlexpartners.com.”
Parting Shots
Please note: I’ve never heard of Sarlex before my email exchange with Hines. So I’m not endorsing their services nor can I personally confirm the identity of the MSP they’re representing. As with any potential M&A — buyer and seller beware (i.e., do your homework).
Still, it’s good to see some M&A chatter getting a little louder. I still believe the market is a bit soft. But perhaps readers will prove me wrong.
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Joe,
I think its safe to assume that acquisitions will continue to gain momentum as our industry matures regardless of the economy.
A question for you, do you think buyers will trend towards acquiring seats/clients or hosting expertise within a specific product set (ie. Exchange, SharePoint, etc)?
Nick
Hey Nick: Good to hear from you. SharePoint was a major bright spot for Microsoft and Partners during the recent Microsoft Worldwide Partner Conference. I lot of ISVs seem to be adding value to the SharePoint platform.
Also, Alfresco and Box.net both have announced initiatives to compete with SharePoint — which basically tells me Microsoft has major momentum. Last I heard, SharePoint is now an annual $1 billion business for Microsoft and still growing fast.
But I think MSPs will need to differentiate by looking at SharePoint ISVs as core partners rather than Microsoft itself. And you’ll also need to either partner (or compete) with Microsoft Business Productivity Online Suite (BPOS), which includes SharePoint, Exchange, etc.).
Lots of challenges — and opportunities.
But I do think MSFT partners will get busy buying one another, and I think it’s safe to say Cisco partners will either buy one another or buy up the remnants of the Nortel Enterprise partner channel.
Those are only my guesses, though.
Working with buyers and preparing sellers in the M&A situations I work with have acquisitions leaning towards businesses that are in the $3 to $5 million+ revenue range, have high/stable profitability and service paticular niche verticals.
In many cases the product platform must coincide with the buyer’s platforms for transition purposes especially if buying a business that services the same industry niche(s)for book of business or geographic type expansions. No matter what the reason for seeking a business to buy in an M&A situation, seats/clients don’t mean too much if the structure of the business needs a very high volume of seats to make a profit. The major portion of the value lies in the profitability, not the revenue.
Hey Joe, how about a M&A listings (want to buy/want to sell) section for MSPs on the web site?
Dave: Martin Wolf, I think, offers that service on his site. But we appreciate you raising the idea with us. We’ll chew on it a bit… …
-jp
Joe, I think its gotta get more active in the M&A market because cash flow problems, whether from credit lines cut off or from customers not paying and A/R building up, are going to turn some formerly well run and profitable companies into targets for need of cash.
Stu
Stu: Difficult for me to argue with you. In recent days I received a few private emails pointing out small, regional buyouts. I hope to add a few to our MSPmentor M&A Tracker in the next few days … once the MSPmentor 250 is completely published.
Do the small regional buyouts even matter? I’ve had partners acquire small shops simply to service a large customer that had a branch in the area. If the deal is under $1 million it’s almost cheaper going that route than opening office, hiring, qualifying, paperwork nightmares and so on.
I will have to say I agree with the person above who asked about a MSP for sale type of a board, it would certainly help establish some valuations for these types of businesses and encourage more people to build it like they are going to sell it..
-Vlad
Vlad: I realize the smaller regional buyouts aren’t big deals but sometimes they do reveal larger trends in terms of skill sets and regional trends. I will also give the sale board more thought. Thanks for reinforcing Dave@4′s earlier thoughts.