MSP Consolidation Rumors On the Rise Again?
Posted 10.19.2021
1 Comment
It seems there is never a shortage of M&A related chatter within the IT channel and we appear to be in the middle of one such rumor mill once again. In fairness, this may be part rumor and part misconception (probably more the latter).
Is there an M&A consolidation frenzy taking place in the MSP profession? We will examine that question.
MSP Zone Show Notes: Private equity is ready to take MSP consolidation to the next level | TechCrunch
Brent
Posted at 15:49h, 26 FebruaryAgreed, Charles. I’ve been in the business since 1993. Your thoughts are spot on and I appreciate you correctly identifying the “truth” in a noisy M&A rumor mill about fragmentation and the inaccuracies in the Tech Crunch article. I agree with your thoughts on the pitfalls of consolidation. PE firms keep ruining perfectly good MSP’s and that is unfortunate. You correctly state that the new MSP startups fill the void created in the wake of the MSP the PE firm just wrecked. Locally controlled MSP’s ARE what the SMB market is looking for. I think there is a way to do this where the founder’s benefit, the employees’ benefit, and the clients of the regional MSP benefit. I have an experience share on this if you are interested as I’m one of the 4 founders of New Charter Technologies. I can show you the exception that you are asking for in your podcast. In 2 years, we are in 18 companies operating in 24 cities with 950 employees. Yes, we are growing by acquisition, but we are also growing at very close to 20% per year, organically. 17 operating company Founders, out of 18 are still working in their respective cities and our low integration model is creating an MSP the industry has not seen. In line with your thoughts on what would make a successful “consolidation”, our first hire, at the corporate level was a director of Marketing. We did this, even before we hired a CFO or director of HR. That’s one of the reasons we are growing organically while most roll-ups contract, and only grow by acquisition. We are doing both, by growing close to 20% per year organically, and acquiring $10MM in EBITDA every year. As far as I know, our low integration model has never been tried, in our industry, and has resulted in a business that in two years has reached a run-rate of $220,000,000.00 gross revenues, with MRR at $11,000,000 and EBITDA of $38,000,000.00. Our Service Gross Margins are holding at 48%, which is best in class. So, you are 100% right about most of the mindless M&A chatter out there; but I’d like to respectfully disagree with your position on consolidation. I’d like to challenge you that “right” operationally mature companies, who are leaders in each of their markets can make a lot of sense, and we might be the exception to your M&A consolidation rule.
I love our industry so much, I don’t mind sharing what is working at New Charter Technologies, so If you would like to talk, please reach out. – Brent Whitfield, President DCG Technical Solutions, LLC, Los Angeles, CA Cell: 818-303-5497and founder of New Charter Technologies, LLC https://www.newchartertech.com/msp-equity-partnership/