DirectPointe Puts Managed Services Business Up for Sale

DirectPointe Puts Managed Services Business Up for Sale

DirectPointe has put its $8.2 million managed services business up for sale in order to focus on hosting and enterprise SaaS applications, MSPmentor has learned. DirectPointe apparently has retained Redwood Capital Group to assist with the potential MSP business practice sale, sources say. Here's an insider's look at the potential sale.

DirectPointe was the top-ranked MSPmentor 100 company back in 2008. But since that time, the Lindon, Utah-based company has increasingly focused on hosting services, platform as a service (PaaS) and SaaS applications. Also, former DirectPointe CEO Michael Proper left in late 2008 to launch ClearCenter, which offers hybrid IT solutions to MSPs. And DirectPointe sold off its managed print services business in January 2011.

On the Block?

Now, it seems DirectPointe is looking to get out of the managed services business, leveraging Redwood Capital to help solicit offers for the business unit. Redwood Capital appears to have deep financial experience in the managed services, SaaS, IT security, and other sectors of the IT market. MSPmentor has not been able to determine DirectPointe's potential asking price for the MSP business practice. We reached out to DirectPointe for comment Thursday evening (Feb. 17). We'll report back if we receive any updates.

Meanwhile, sources say DirectPointe's managed services business exceeded $8 million in 2010. Nearly $5 million involved recurring revenues, with roughly $3 million involving hardware, software and professional services, the sources say. I'll avoid the temptation to use those figures to place a valuation on the company, since valuation is in the eye of the buyer...

Staff, Customers and Services

DirectPointe's managed services organization has roughly 40 employees and roughly 140 customers. Roughly half of DirectPointe's managed services revenues come from Utah-based companies, with Arizona, Colorado, Kansas and Washington D.C./Virginia also contributing significantly to the MSP revenue stream, the sources say.

According to sources, DirectPointe's managed services portfolio includes PC services, server services, managed services, hosted Exchange, help desk, monitoring, asset management, backup services, virtual desktop infrastructure, and professional services. Major technology partners include Quest Software, Trend Micro, Iron Mountain, Microsoft Live, PacketTrap and Intermedia, the sources add.

Sources familiar with DirectPointe's business say the company's managed services revenue stream generates 45% gross margins. The company is earning roughly $46 per PC and $220 per server per month on existing contracts, and roughly $80 per PC and $280 per server per month on renewal contracts, the sources say. The former averages are low because some legacy customers made up-front payments on their contracts, the sources add.

Looking forward, DirectPointe is looking to sell the 140 customer contracts, pending deals in the pipeline and the managed services infrastructure required to continue supporting those customers. Roughly 38 DirectPointe employees could be part of the proposed deal, the sources say. Assuming DirectPointe actually sells its managed services business,  the company would use the proceeds to invest in its hosting business, a so-called Vu724 platform (which DirectPointe apparently trademarked in November 2010), and a Foglight offering designed for MSPs and channel partners. I believe the Foglight offering leverages Quest Software.

DirectPointe projects the managed services business will grow recurring revenues from $5.86 million in 2010 to $6.6 million in 2013, with gross margins growing from 46.7 percent in 2010 to 47.5 percent in 2013, our sources say.

What's Next?

I don't know how long DirectPointe expects to shop the managed services division to potential buyers. Sources say Redwood Capital Group is starting to circulate a detailed document that provides potential bidders with background on DirectPointe's managed services business.

This is the latest in a growing list of MSP-centric M&A activity. Some recent deals have been regional in nature. Others have involved MSPs pushing into specific vertical markets. DirectPointe's managed services practice may fit both descriptions: Most of the MSP revenues come from Utah, and sources say the MSP operations are HIPAA compliant.

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