TCI was looking for some regional leverage in North America and found what it was looking for in Savid, which is based in Chicago, Ill. According to TCI Managing Partner Sam Attias, Savid’s headquarters will become TCI’s “central hub” for its new North American security and compliance practice.

TCI is planning to launch the practice during Q1 2012, and its Savid Technologies acquisition appears to be the last piece to be put into place. According to Attias, TCI will leverage Savid’s security consulting expertise in order to build a fully integrated security offering for TCI’s North American partners to sell to their end-users.

Savid’s Security Expertise

Savid’s security expertise starts at the top with Savid Technologies CEO Michael A. Davis, who TCI refers to in its press release as an “industry renowned cloud security expert.” Davis will continue in his current role, as Savid will keep its own brand name and its leadership in place under the terms of acquisition.

More to Come in 2012

The Savid Technologies acquisition is the first major move of the year for TCI. If 2011 was any indication, then we should be hearing a lot more from the company this year. Adding OS33 President Jacob Kazakevich to its Board of Directors, teaming with MSPExcellence and acquiring Bravura Networks were just some of TCI’s major accomplishments last year. And as mentioned, the company plans on picking up steam by launching its North American security and compliance practice within the next month and half. We’ll be tracking the company’s progress throughout 2012.

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1. Listen More, Talk Less: During my meetings with the Penton IT/Developer team in Fort Collins, Colo., I’ve spent considerable time talking — with pride — about Nine Lives’ brands (MSPmentor, The VAR Guy and Talkin’ Cloud). I yapped, yapped, yapped about our communities. In retrospect, I wish I talked a whole lot less and listened a whole lot more.

Nine Lives essentially is a small business. Penton has more than 1,000 employees. Many of those folks — our peers — are experts in their fields (content, search engine optimization, sales, etc.). I’ve learned a lot already from those folks. But I could learn more — and learn faster — if I simply listened more often.

Lesson for MSPs: Small business owners tend to be fiercely independent. They believe deeply in their own ideas and strategies. But there’s a reason why small businesses get acquired by bigger companies. The bigger companies know how to automate processes and gain economies of scale. At some point, the small MSP owner has to swallow his or her pride and admit there’s a lot to learn from larger companies.

2. Network Far More Internally: Most of my day is spent networking across the IT industry — mostly in the channel. One of my favorite parts of the day: Replying to reader comments across our sites. Meanwhile, Penton remains packed with editors who have far more experience than me building websites that attract millions of page views. I’ve started participating in twice-monthly editorial calls with the Penton team, learning more about the team’s leadership styles, talents, goals, etc. I wish I had done that sooner.

Lesson for MSPs: We’ve seen quite a few MSPs get acquired by national IT service providers. If your company gets swallowed up then make internal networking a top priority. Plug into the internal tools — staff portals, conference calls, social media groups — to get known fast. And begin to learn from people who are smarter than you.

Indeed, there are people smarter than you.

3. Take New Paths to New Goals: We’ve leveraged a pretty basic business model to build community at Nine Lives. We network at live events, we connect with CXO leaders, and we pull the conversation back onto our websites. The outcome: We generate about 250,000 page views per month across our channel sites. Meanwhile, Penton has websites that generate millions of page views from influential audiences. Surely, Penton’s path to big website traffic was different than our path to community development.

Lesson for MSPs: The steps you took to build an early-stage growth company will be drastically different than the steps you take when joining a more mature, sustainable business. Hold fast to your secret sauce but admit to yourself that you’ll need to embrace those alternative recipes for success.

4. Embrace IT Systems That Can’t Be Changed: When Nine Lives was an independent company, I  lived non-stop on my personal cell phone. Office phone? Who needs that? And I typically booked all my travel through Expedia before sending my expenses in a simple spreadsheet over to my business partner, Amy Katz. Many of my expense reports at Nine Lives were filed late. Very late.

When I arrived at Penton Media I received a new VoIP phone, and access to the company’s employee portal for filing expense reports, booking travel and so on. It was a shock to my system. I have certainly used corporate IT systems before — during my time at Ziff Davis Media and CMP Media. But it had been a few years since I adhered to corporate policy and plugged into a big corporate network.

The first few weeks at Penton (September 2011), my new VoIP phone sat in a box on the floor. The phone had some technology glitches and I didn’t rush to call the help desk for assistance. I ignored the expense reporting system as best I could. I clung fast to my old ways. That is, until I realized some battles are not worth fighting. By October 2011 I started to see the error of my ways. The faster I plugged into Penton’s IT systems, the faster I could focus on my true love: Building and managing our web sites. I finally learned that the IT systems could save me time … if I just learned their nuances.

Lesson for MSPs: The moment you sell your business to a larger company you’ve essentially bet your business on that company’s core IT infrastructure (email, phone, finance, travel, etc.). Accept those realities super-fast. But never — ever — let go of more specialized IT systems that made your small business great. In our case, that means holding fast to our WordPress-based websites until somebody shows us a better solution.

5. Don’t Forget to Laugh (Even At Yourself): My personality is pretty simple. I tend to be very intense when it comes to winning, success and competition. But I also laugh — a lot. During the M&A process, I think I got pretty intense. I was uptight during the negotiations, which were in good hands with Amy Katz (my business partner), our advisors and the Penton team. But the process weighed on me. And certainly, the process was all-consuming for Amy.

Looking back, I would have spent more time calling Amy to talk about non-M&A items — life, family, vacations. Now that it has been five months since the Penton-Nine Lives deal was finalized, I’ve learned to relax a bit more. I’m laughing a lot more. And I’m dialing Amy and the rest of the Nine Lives team to talk about life outside of the office. It’s a good balance.

Even when I mess up I take a deep breadth and march forward. Yesterday was one such day, when I made some erroneous entries in our newly implemented marketing system. Mistakes happen… but I won’t make them twice.

Lesson for MSPs: Other than getting married and having kids, the most stressful time in my life was during the M&A negotiations. And ironically, I wasn’t even all that involved in the negotiations (here again, Amy had everything under control). Looking back, I would have found an outlet for my stress. The gym. Vacations. And of course: More laughs. That’s an FYI.

What I Skipped

You’ll notice that I didn’t mention any of the following items… because frankly, we got them right.

1. Financial Structure: Our M&A process was very thorough. We had good advisors (Foundation Partners) and Penton was a firm but fair negotiator. We found common ground each time we hit an impasse. I strongly recommend that MSPs exploring M&A deals find a good external advisor to help you get your house in order. Assuming the advice you get is sound, you’ll avoid numerous mistakes, delays, snafus and potential heartache.

2. Exit Strategy: During a potential M&A deal ask yourself the following question: Can you picture yourself working for the buyer? If not, is the buyer willing to let you exit pretty quickly? Answer that question to ensure you’re pursuing an M&A engagement for the right reasons. As I stated during the initial Penton-Nine Lives announcement: This wasn’t an exit strategy. It’s an acceleration strategy.

3. Culture Conflicts: Sure, the Nine Lives team has had to embrace business processes and other big-company realities. On the flip side, the Penton team has had to deal with my move-fast mentality, sometimes racing forward on something when all the details haven’t been worked out. But during our very first meeting with the Penton team, we knew we could be a cultural fit. Penton folks seemed to genuinely enjoy their jobs. And when one employee doesn’t have an answer at their fingertips, they find us someone who does. Pretty impressive.

We’ve still got a lot of work to do as we seek to scale Nine Lives Media. But I’m still enjoying the journey. And now that the initial “M&A stress” is over, I’m back to enjoying what I love most: Blogging and engaging with our readers. And laughing each time the opportunity arises.

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• Related posts are coming soon

As the old saying goes, we all want to buy low and sell high. But setting company valuations is an inexact science. Should we focus on current EBITDA? Future earnings projections? Past quarterly results?

Insight Venture Partners, for one, acquired Ziff Davis Enterprise for about $150 million to $160 million in 2007. That was roughly 1.5 to two times revenues at the time, friends have told me. GE Capital Corp. quietly provided financing for that transaction. Clearly, Insight Venture Partners was looking to ride the web content and IT marketing waves, snapping up well-known Ziff Davis Enterprise brands like eWeek and Channel Insider — plus an established events business. (Side note: I worked for Ziff Davis Enterprise’s predecessor from 2004 to 2006.)

The Numbers Didn’t Add Up

No doubt, Insight Venture Partners’ business plan going forward was to grow Ziff Davis Enterprise’s revenues. But ultimately, Insight Venture Partner’s financial models never really panned out. Print advertising continued to dry up. The 2008 credit crunch put the squeeze on IT spending. At some point around 2009 or 2010, I suspect, Insight Venture Partners essentially walked away from Ziff Davis Enterprise — leaving the debt holders (GE Capital?) to call the shots.

While the Ziff Davis Enterprise team worked overtime to reposition the company for digital media growth, ever extra cent Ziff Davis Enterprise made was earmarked for debt payments, I believe. The result: It was difficult for the remaining ZDE team to innovate on limited budgets.

Last week, the bankers called the final shot — selling Ziff Davis Enterprise’s assets to Quinstreet, a lead generation company — for an undisclosed sum. Quinstreet allegedly plans to cut 80 percent or more of the Ziff Davis Enterprise staff.

Sustainable Strategy?

So what’s the lesson here for MSPs, IT service providers and small business owners?

For those who are planning exit strategies: Be careful what you ask for. During the selling process, you may strive to make every dollar possible. But if the buyer opens his or her wallet too widely — perhaps pursuing unrealistic debt levels to complete the deal — you could risk harming your chances for a long-term earnout. And you could even hurt your industry legacy.

Sure, get every cent you deserve. But make sure the buyer can carry your legacy forward — perhaps even building your company into something bigger and better than you could have imagined.

Who Is Really to Blame?

Some Ziff Davis Enterprise veterans are upset about Quinstreet’s alleged plans to cut ZDE headcount and shutter some media brands. But here’s the reality: This news was a decade in the making. Ziff Davis Enterprise and its predecessor companies have spent more than a decade trying to overcome big debt from multiple M&A transactions.

The debt — amassed because of overly optimistic valuations in 1999 and 2007 — finally caught up with Ziff Davis Enterprise last week. Don’t let debt catch up to your company. Stick with your tried-and-true focus on cash flow and reliable recurring revenues.

Side note: Best wishes to the Ziff Davis Enterprise staff members — current and past — as they march forward with various career pursuits. Thank you for all of the education and guidance you’ve offered me for more than two decades.

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Rafte & Company mainly serves law firms, non profits and professional services companies looking to design and integrate new business and technology strategies into their existing working environments. Those strategies include consulting, remote collaboration solutions, document management software support and legal software support. Rafte will now combine its specific vertical expertise with The Aldridge Company’s technology expertise and focus on helping customers implement more efficient business processes.

Rafte and Aldridge plan to offer both SMB and vertical-specific customer bases new managed services like technology and work process evaluations, security and disaster recovery audits, cloud hosting, and an entirely new suite of business consulting services.

“After working closely with Rafte & Company on numerous projects during the past three years, it became clear that we could accomplish more and deliver more value to our customers by combining our IT support services than we could separately,” The Aldridge Company Chief Operating Officer (COO) Patrick Wiley said in a prepared statement.

The MSP market in Texas is quickly becoming one of the more competitive managed services markets in the country. We’ll keep an eye on how well the new Aldridge-Rafte combo competes against other MSPs making headlines in the Lone Star State like White Glove Technologies,  VerityThree, Network Elites, and others.

Tracking Managed Services Provider Mergers and Acquisitions

Meanwhile, here’s an updated list of MSP mergers and acquisitions that MSPmentor has been tracking.

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The acquisition builds on AVI-SPL’s strategy, launched in 2009, to become a big-time player in the video communications and managed video services sector. Since the plan was enacted, AVI-SPL has steadily grown its video communications business, which reached $200 million in revenue in 2011.

According to AVI-SPL CEO John Zettel, the company now includes video services in over 50 percent of its projects, and the Iformata acquisition solidifies AVI-SPL’s commitment to further adding video communication services to its managed services offering.

Meanwhile, Iformata has been in business since 2004. Its customer portfolio includes global enterprise companies and equipment manufacturers, all of which will now be served by AVI-SPL.

“With the acquisition of Iformata, we become one of the only video solutions providers who can truly provide ever aspect of the video communications experience,” AVI-SPL Executive VP of Video and Unified Communication Mike Brandofino said in a prepared statement.

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MSPmentor: It sounds like you’re sticking with two company names. Will you eventually consolidate to one name?

Guice: We want to keep the GoBeyondIT brand to leverage more as the cloud services piece of the business and for the channel side. We are going to make a big push in the channel sales arena and we think this brand and name lends itself better than the outsourceIT name and brand. If we go in as outsourceIT some will view us as a threat and our think we are attempting to displace everything, when in fact that is not always the case, particularly now with our strength in cloud services and hosted desktop.

MSPmentor: Of the 70 employees, roughly how many were outsourceIT and how many from GoBeyondIT?

Guice: Technically all employees will ultimately merge over to outsourceIT as outsourceIT is the holding company for GoBeyondIT. But the split was 50 outsourceiT employees and 20 GoBeyondIT employees.

MSPmentor: How did you figure out a valuation for the deal?

Guice: We had an offer to be bought and we had a pretty good valuation from that company which we had in writing; we were able to use that as the basis for the valuations and it led us to good ownership format going forward. (Guice declined to discuss specific valuation information -Ed.)

MSPmentor: Your M&A announcement mentioned virtual desktop infrastructure — VDI — as a core focus going forward. How big is the opportunity and does it include the tablet trend?

Guice: VDI is huge and yes I see this technology being pushed to Tablets as well.  As a matter of fact GoBeyondIT has a partnership with a EMR company that bundles the hosted desktop solution with their EMR solution. These clients use tablets all throughout their networks, exam rooms, clinics, etc.

MSPmentor: How soon before you go looking for M&A targets on the U.S. West Coast for a national push?

Guice: I don’t know the answer to this just yet; we have two other M&A’s teed up but both are on the U.S. East Coast.  So for the time being we’ll probably stay put on this coast, but we will soon begin to market on a more national stage and then we’ll see if there is a demand for us out west, if so we’ll more than likely buy someone vs. open an organic office.

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According to a press release, the combined company has office locations across the mid-Atlantic and South Eastern United States — with offices as far north as Philadelphia, Pa., and as far south as Charlotte, N.C., The headquarters will remain in La Plata, Md., close to the Washington, D.C., metropolitan area with support hubs in Winston-Salem, N.C., and Baltimore, Md.

Executive Leadership

The merged company involves four key executives:

• Craig Guice, CEO of outsourceIT, will continue to serve as CEO. Guice is a familiar name in the managed services market, frequently popping up at major conferences such as IT Nation, organized by ConnectWise. Updated, Jan. 10, 5:45 p.m. ET: MSPmentor’s interview with Guice about the GoBeyondIT deal.
• Guice’s president title shifts to co-founding partner Mark Vliet (previously VP and CTO).
• Richard Crane, CEO of GoBeyondIT, becomes executive VP of corporate development
• David Webb, partner of GoBeyondIT, becomes executive VP of Enterprise and Strategic Accounts.

In a prepared statement Guice said:

“This is an exciting time at outsourceIT, we believe combining forces with GoBeyondIT will accelerate our already fast growth rate. When exploring this opportunity we quickly realized each company provided strength to the other company. For us (outsourceIT), the biggest driver was the hosted desktop solution offering they (GoBeyondIT) brought to the table. We can now bundle this service with our MY IT Department offering and deliver our clients the best in class Cloud Services Support.”

Cloud Services and Managed Services

The combined company will operate as both outsourceIT and GoBeyondIT — though MSPmentor is seeking clarification on how the branding will work. The company’s managed and cloud services include:

• Helpdesk
• Project Services
• Virtual CIO Services
• NOC (Network Operations Center) Services
• Hosted Desktops (Virtual Desktop Integration, VDI)
• Hosted Servers and Hosted Applications
• VoIP Telephone Services.

This is one of the largest MSP-related mergers and acquisitions so far in 2011, MSPmentor suspects. Most of the other deals involve small MSPs — typically, fewer than 10 employees each. We’re checking in with Guice now for more details. Guice offers more details in this interview.

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Even before the deal, ePlus was a Cisco Gold Partner that achieved Cisco Master Specializes in Security and Unified Communications. plus the Cisco Managed SErvices Master Certification. In a prepared statement, ePlus CEO Phillip Norton said, “By combining our joint expertise, ePlus is strategically positioned to provide the highest level of service to customers in Vermont, Maine, New Hampshire, and Massachusetts.”

ePlus did not disclose VantiCore’s headcount, nor did ePlus publish financial terms of the deal. However, ePlus is publicly held (NASDAQ: PLUS) so we’ll be tracking SEC filings to see if any new VantiCore details emerge.

ePlus already has some reach into New England. The company recently won a managed services contract with Charter Oak State College, a Connecticut-based public online college for adults seeking to complete bachelor’s degrees. The deal involved Cisco Unified Communications as well.

Track all MSP mergers and acquisitions by visiting the MSPmentor Merger and Acquisition Tracker.

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Best Buy and mindSHIFT: By the numbers…

1. Valuation: I believe the buyout valued mindSHIFT at roughly 10 times to 12 times EBITDA (earnings before interest, taxes, depreciation and amortization). That figure is based on chatter I’ve heard over several months. Assuming my figures are in the ballpark, that’s a healthy premium. I doubt most MSPs could fetch that type of multiple.

2. Price Per Managed Desktop: mindSHIFT oversees 25,000 customer desktops within its managed services business. I don’t know how many servers are part of that infrastructure. So Best Buy essentially paid $6,680 per managed desktop to get a hold of mindSHIFT.

3. Price Per Employee: mindSHIFT has approximately 500 employees. So Best Buy essentially paid $334,000 per employee to acquire mindSHIFT.

4. What Were MindSHIFT’s Margins?: mindSHIFT generated roughly $100 million in revenues and $13 million in earnings for 2010, according to comments CEO Paul Chisholm made in mid-2011 at the TruMethods Schnizzfest conference. At the time, Chisholm said 75 percent of revenues were recurring, and 45 percent were cloud-related. Also: Half of the company’s growth had come from acquisition and half involved organic growth.

5. Valuation, Part II: Now, let’s assume mindSHIFT’s revenues and earnings grew five to 10 percent in 2011. That would put revenues at about $105 million to $110 million for 2011, and earnings at $13.65 million to $14.30 million for 2011 — right around that 10X to 12X EBITDA multiple I mentioned in bullet 1 above, which brings us back to the $167 million purchase price for mindSHIFT.

Admittedly, MSP valuations vary wildly. But using the variables above — mindSHIFT’s top-line revenues, earnings, employee headcount, and managed desktops — you can begin to analyze how well you’re performing vs. mindSHIFT and maybe even what your company is worth.

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MSPmentor believes an MSP with roughly $15 million to $20 million in annual recurring revenues is set to announce some sort of M&A deal later this month.  The deal, if true, will likely involve a healthy blend of cloud services and managed services. I’m not sure if it’s a national deal but I do know the potential deal — if confirmed — will have potential East Coast implications.

Meanwhile, a reminder: Roughly 100,000 North American channel partners — VARs, MSPs, IT service providers — remain independent. Keep things in perspective: Some MSPs are pursuing M&A, but the vast majority of the market continues to pursue organic growth.

Unethical Dealings?

Also of note: A few MSPs have told MSPmentor that they feel betrayed by some unethical moves in the M&A market. In particular, some potential buyers have allegedly milked potential sellers for information before ending M&A discussions. Yes, responsible discovery — on both sides of the table — is part of the M&A process. And proposed deals sometimes fall apart. But some MSPs are starting to believe that “buyers” aren’t really buyers. Instead, the potential buyers are allegedly gathering competitive information and then ending M&A discussions…

We’ll share more perspectives on that alleged trend in the days ahead.

A Complete List of MSP M&A Deals

You can track a complete list of MSP merger and acquisition activity using the MSPmentor M&A Tracker. Note: Some of the initial 2012 deals were actually negotiated in 2011 but actual announcements didn’t surface until January 2012.

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• Beyond Retail: Best Buy Completes mindSHIFT Acquisition
• Managed Services Merger: Canfield Computers and Steel Valley