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Private equity group: 'We can write a check of up to $1 billion'

July 8, 2022

6 Slides

By Abe Garver

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Abe Garver

Focus Investment Banking’s MSP Team has been the catalyst for and advised on managed service provider (MSP) transactions with 47 parties over the past 2 ½ years, including four in May 2022, that each sold at healthy valuations.

Contrast to Public Stock Market

In contrast to the public stock market, where the tech-heavy NASDAQ is down about 30% since its November 2021 peak and the S&P 500 is down 20%, we are seeing little to no decrease in valuations, and an increase in the number of MSPs and private equity groups seeking $10.0 -$ 35.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization) that want to have conversations with us about selling and/or buying MSPs.

As an example, last night I received an email from the head of one of the largest private equity groups in the world saying, “We can write a check of up to $1 billion, but in this space that is hard to do…but because our fund is open ended and flexible, we can start smaller (e.g., $25.0 million of EBITDA) and build from there.” As another reference point, we currently have multiple sell-side assignments “in-the-market” with more than 30 signed nondisclosure agreements (NDAs).

Is this a function of our momentum and our skill sets as investment bankers, or is it a function of MSP owners running for the exits at the top and getting out before the market turns? Or is there something else going on here?

View the slideshow above to learn more.

“Despite several tumultuous months in the broader market, MSPs continue to buck the trend, and are providing value through M&A for both sides of the transaction,” said Stan Gowisnock, managing director and technology services team leader at Focus. “Capital is abundant as the sector continues to show impressive returns and remains an attractive target for investment as a whole. As corporations are looking to improve internal efficiencies to bolster valuations and profitability, outsourcing of IT and other teams remains paramount. Committed missions of corporations, with capital directed to improve customer experience, is a long-standing formula that continues to work even in uncertain times.”

Abe Garver is the MSP team leader and managing director at Focus Investment Banking, which was ranked the #1 Lower Middle Market Investment Bank by Axial. Over the past two-and-a-half years, Garver and his team have catapulted nine MSPs into “New Platforms” for private equity groups (PEGs) and advised on MSP transactions with 47 parties. You can follow him on Twitter and LinkedIn.

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