Getting Public About Private Equity

Pictured above, left to right: Craig Galbraith and James Anderson of Channel Futures, Integris’ Rashaad Bajwa, Abe Garver of FOCUS Investment Banking, Telarus’ Adam Edwards and UPSTACK’s Christopher Trapp.

CHANNEL PARTNERS CONFERENCE & EXPO, LAS VEGAS — There has been an incredible amount of mergers and acquisitions and investment activity in the partner community over the last 20 months. And, it shows no signs of slowing. Partners in the IT and connectivity services sectors are wheeling, dealing, buying, selling, exiting, negotiating, expanding and attracting private equity money at record levels. 

The level of M&A activity has MSPs, agents and technology providers alike across the whole industry putting on their game faces. What should their next strategic move be? How can they maximize value? What are the reasons channel partners are suddenly so attractive? What are the technologies and services fueling this trend? What are the pros and cons of it all?

Mergers and Acquisitions and PE – The Burning Questions

The panel session at Channel Partners Conference & Expo 2022 led by Craig Galbraith, editorial director, Channel Futures and James Anderson, senior news editor, Channel Futures, addressed these questions.

The panel featured Abe Garver, MSP team leader and managing director at FOCUS Investment Banking, Rashaad Bajwa, CEO of Integris, Adam Edwards, CEO of Telarus, and Christopher Trapp, founder and CEO of UPSTACK.

The mergers and acquisitions and private equity landscape has a lot to do with where technology is headed, and how prices are being driven. Investors have found conviction, and they’re not letting go.

When it comes to evaluating companies, what goes into the thinking and process? 

The Importance of Peers

“You have to become more notable to your peers in your community,” said Abe Garver. “Join a peer group. They’re invaluable, and they can really help you up your game. There are a lot of financial metrics to worry about, of course, but getting involved in this type of community is arguably the most important aspect.”

Rashaad Bajwa focuses on operational maturity and the values of the organization. 

“That is the differentiator,” said Bajwa. “The table stakes for us are reliable recurring revenue at a good margin. We are looking to be a premium national MSP so we are hyper-focused on company reputation and strength of operations.” 

Chris Trapp mentioned the aspect of investing in entrepreneurs, and company culture. 

“It’s qualitative,” said Trapp. “You have to have a passion for what you’re doing. The cultural component is vital to us – we prioritize it. It doesn’t matter if you’re an agent or an MSP – it’s not just about the end transaction, it’s about cultivating your culture and supporting the customer no matter what changes.”

There is also something to be said about entering into an agreement with your eyes open, and looking into each dark corner of the deal. 

“When you’re looking at valuations, before you get there – you have to understand the underpinnings of the economics of everything first,” said Adam Edwards. “You have to look at and know everything that funnels into the deal. A lot of these things are huge, so you must ask yourself, “what do you want out of the deal?” Answer that question first, then get into the valuation.” 

Navigating PE

So, what is it like working with a PE investor? It can be somewhat of a foreign concept for partners, typically of entrepreneurial and independent mindsets. There’s more to these deals than just spreadsheets and dollar signs, so how do MSPs drive smart?

“We’d heard horror stories regarding PE, so we shopped around a lot before diving in anywhere,” said Edwards. “These guys are out there to make money, so they can be ruthless, brutal.  A common model is partnering. Picking a PE partner is picking just that – a partner. When I enter into these conversations, I don’t want to just know about the wins these guys have had, I want to hear about times they ate dirt. It’s easy to celebrate a win, but it’s important to determine how someone overcame a challenge. If you pick the right partner, it can be magic.”

Bajwa emphasized the importance of picking the right partner.

“Make sure you have a similar vision and values,” said Bajwa. “Most MSP owners are really good at running an IT business, but very in the dark when it comes to a balance sheet. This is why picking the right partner is so vital.”

Related News From FOCUS Investment Banking

To showcase that the mergers and acquisitions/PE machine doesn’t slow down, FOCUS Investment Banking (Abe Garver) broke some news at the show.

Famed ice hockey player Wane Gretzky has been quoted saying, “Skate to where the puck is going, not where it has been.”

In a well-timed announcement, FOCUS Investment Banking’s MSP Team has just come out with the first predictive “signal-driven” custom scoring of the top 1,138 targets that appear on the most prominent industry lists. This is to help private equity firms skate to the proverbial “MSP Puck.”

Illustrative organic growth “Signals” in FOCUS’ proprietary algorithm which influences rank:

• Growth intent % (e.g. new job postings on LinkedIn, indeed & Glassdoor)
• Employee count (e.g. 12 months growth rate), and
• Web traffic (e.g. 12 months Alexa rank change %)

FOCUS hopes its research will reduce the ‘frictional’ cost of adding private equity growth capital to fuel even more growth.