mindSHIFT, which today was acquired by Best Buy for $167 million, will accelerate its existing business strategy and remain in the market for potential managed services acquisitions, according to mindSHIFT CEO Paul Chisholm. During a phone call a few minutes ago, Chisholm (pictured) offered MSPmentor deeper insights about the Best Buy-mindSHIFT deal. Also, some quick math from MSPmentor suggests Best Buy paid about 10 times to 12 times earnings for mindSHIFT, though our math could be slightly off the mark...
Here's a high-level summary of our conversation, plus MSPmentor's own fast math further below.
MSPmentor: Why did mindSHIFT do the deal with Best Buy?
Chisholm: "It's a great opportunity where one plus one can equal three. [Best Buy] has a huge brand, and huge financial resources" to expand faster than mindSHIFT could have expanded on its own. "It's a great validation of our model," said Chisholm, referring to mindSHIFT's managed services and cloud services. Chisholm also noted that customers go into Best Buy stores and they "want more than equipment."
MSPmentor: mindSHIFT has made multiple acquisitions of its own. Will that strategy end or change under Best Buy's ownership?
Chisholm: He pointed out that Best Buy's acquisition of mindSHIFT isn't expected to be completed until the end of 2011 or so. Assuming the deal goes through without a hitch, Chisholm said mindSHIFT's strategy "is not changing. We will be a subsidiary of Best Buy. In terms of what were going to be doing that's not changing." The effort, Chisholm said, will include potential M&A deals, though such deals will now be subject to Best Buy's review and approval.
Also, Chisholm sees potential opportunities for Best Buy's retail stores to drive lead generation programs for mindSHIFT. However, Chisholm stopped short of saying Best Buy will connect the dots between its Geek Squad break-fix services and mindSHIFT managed and cloud services. Perhaps over time there will be synergies to be explored between Geek Squad and mindSHIFT, Chisholm noted, but there are plenty of immediate opportunities that mindSHIFT needs to focus on.
MSPmentor: mindSHIFT hired a financial advisor for the Best Buy deal. Does that mean mindSHIFT's legacy investors were looking to sell, and were there additional bidders for the company?
Chisholm: "Our [legacy] investors didn't necessarily want out. But they probably didn't have all the capabilities that we need to accelerate mindSHIFT's growth." mindSHIFT therefore decided to consider offers for the company, and there were multiple companies that expressed interest and multiple companies submitted bids, Chisholm said.
MSPmentor and Chisholm did not discuss bidder names or valuations, a closely guarded topic in deals such as this. However, MSPmentor is watching SEC filings and other sources of information for potential valuation data points.
MSPmentor: It sounds like two of mindSHIFT's more recent acquisitions, Alpheon and Orbit, have an earnout period. Will those earnouts accelerate amid Best Buy's purchase of mindSHIFT?
Chisholm declined to discuss details involving mindSHIFT's previous MSP acquisitions, but he said mindSHIFT will fulfill its commitments to MSPs that the company has acquired.
MSPmentor: What's the overall message to the MSP community and end-customers?
Chisholm: "It's great for the industry overall. It further validates our industry and our strategy. From a customer point of view it's nothing but good news. Are we financially secure? The answer has been and continues top be 'yes.' This deal just cements that answer."
mindSHIFT Valuation: A Quick EstimateSo, what was the overall valuation/multiple of mindSHIFT? Back in 2010, mindSHIFT had roughly $13 million in earnings, according to a June 2011 interview with Chisholm.
Now let's do some quick, hypothetical math. Assuming zero to 20 percent growth in 2011, I suspect mindSHIFT's earnings for this year will be somewhere between $13 million to $16 million. As a result, I think Best Buy paid about 10 to 12 times current year earnings for mindSHIFT.
Of course, my math could be off the mark. We'll keep reading SEC filings and other materials to see if we can confirm our hypothesis on valuation.