The recent acquisition of Protek by TUC Brands (aka The Utility Company), may be yet another M&A deal in the MSP world, but it really isn't. Some may view this as another sign of consolidation in the market (I don't think it is), and others may see it as evidence of companies cashing out in lieu of great uncertainty and a looming national election in the US.
I recently spoke with TUC CEO Mark Scott and got some behind the scenes insights on the deal and have come to my own conclusions. TUC, the master MSP and franchise organization based in Ottawa, Canada has been acquiring MSP companies for the last few years; complimented by their franchise model of helping entrepreneurs and existing IT companies get into managed services and cloud computing, they have been on a rapid growth strategy that focuses more on results and less on fanfare.
The company now stands at around 100 employees with roughly 50 franchisees (current revenue, unknown). According to Scott, the reason for the deal was part tactical; they add roughly $10 million dollars in revenue to their top line. But, the deal also represented the addition of managed print services to TUC branch offices and franchise locations. These type of acquisitions, which focus not solely on adding revenue, but also include technology enhancements, generally do much better in the long run, particularly for the acquiring company. I've long been a proponent of M&A deals NOT being primarily for revenue enhancement; such deals are difficult to value and often neglect other intangibles in the business.
As for the seller, Protek, I also got some interesting information from Scott about their motivations for selling. It seems that Protek had not even contemplated, seriously, the idea of selling until TUC approached them. Although Protek had been approached by numerous other acquisition suitors, the company did not feel right about those candidates until TUC came along. Which brings me to me to the issue of valuation.
The terms of the deal were not disclosed, and I won't mention what TUC's valuation strategy is or what they are paying for MSP companies. I will, however, say that Protek obviously felt the valuation was fair, and from what I know about TUC's M&A strategy, the valuation model they are using is higher than what I've seen from other M&A buyers in the market.
TUC's M&A strategy is to buy valuable companies. Not just valuable in the sense of a good bottom line, but well run and well organized MSP businesses. Attempts by other buyers in the market to buy broken or underperforming companies is dangerous. It is rare that such a deal works out well, for buyer or seller. TUC wants healthy companies to acquire or join its franchise model. That distinction alone, could explain why Mark Scott is seeing such a rapid growth trend.
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