CompassMSP made its third acquisition this year, and it’s not the only MSP on a buying spree.

July 17, 2019

6 Min Read
Mergers and acquisitions
“Doing your pre-merger due diligence is essential, but we have learned, at times the hard way, that this due diligence shouldn’t just be from a financial standpoint. Getting a full understanding of the way the incoming organization functions from a process, policies and a personal, human component (or ‘HR factor,’ as we’ve come to call it), is key. As the company doing the acquisition, you want to take your time in getting to know the organization you’ve acquired and fully understand the way that they were doing things, presumably successfully, before you came into the picture. Remember that if they were profitable before you merge, they should remain profitable afterward, so you do have some time on your side to cement the courtship before bringing things under one roof.  You need to take your time with that HR factor in an acquisition, but not from a branding perspective. We once learned in an early acquisition, and learned the hard way, that corporate communication, both internal and external, needs to have a set ‘go-live’ date and plan in place well before the transaction.  On that date, you need to have all your ducks in a row so that your two teams coming together as one know exactly what they need to about the company as a whole, its vision, and how the brand is going to go to market in the future. If you let both brands co-exist separately, it will only make ripping the Band-Aid off later more difficult, more time-consuming and more costly as the departing brand becomes more and more embedded.” —Aaron Bradley, VP of marketing, CareWorxShutterstock

By Maddie Bacon

For Tom Praschak, CEO of CompassMSP, acquisitions only happen when a company has three key ingredients: it agrees with CompassMSP’s vision and strategy, has a similar culture, and has leaders who fit in with the existing leadership team.

Greenpoint Business Solutions is the most recent company to match that recipe is managed IT services provider

CompassMSP, a Jacksonville, Florida-based managed service provider and a 2019 MSP 501 winner, announced its acquisition of GreenPoint in late June, marking the company’s third acquisition this year.


Compass MSP’s Tom Praschak

“GreenPoint is a very client-centric company,” said Praschak, noting that client relationships have the highest value to him and CompassMSP. “Also, [Ed Galli, CEO of GreenPoint], wanted to leverage what we’ve built out as a platform to take his business to the next level.”

“Ultimately, we’re looking for companies that meet our criteria and GreenPoint happens to do that,” Praschak said.

GreenPoint is in New Jersey and has a growing footprint in the area. With the acquisition, CompassMSP will have a strong foothold there, strong customer service and more robust support. This particular acquisition has a lot to do with geography and better serving New Jersey, Praschak said.

“GreenPoint is a growing company; it’s going to be a presence here in New Jersey,” he said. “Anytime we open up a geography, I am looking to make investments and have a leader that will, in essence, help me dominate the geography that we’re going after. Ed [Galli] has that skillset.”

Praschak added that GreenPoint has “a lot of expertise in the New Jersey area, the clientele, the SMB area. They have a very diverse set of clients here, so I am looking to leverage that. As we execute our strategy, we are going more vertical; they have good expertise in the software clients are using here with vertical expertise.”

But this isn’t CompassMSPs only acquisition this year; there have been two others.

In January, CompassMSP bought the Pennsylvania-based managed IT services provider TS Tech Enterprises. TS Tech Enterprises had a client base in eastern Pennsylvania, Delaware and New Jersey, so CompassMSP considered this another geographic acquisition.

“[TS Tech Enterprises] was a business that was very client-centric, had a great culture, team environment, and was collaborative,” said Praschak.

He noted GreenPoint was similar to TS Tech Enterprises in that they both hit the three things needed for a successful acquisition, and they both represented “new geographies” for CompassMSP.

In March, CompassMSP bought its second company this year, Miami-based Dynamic Media Technologies dba IT support Miami (ITSM). ITSM covered the south Florida SMB market and Praschak referred to this purchase as more of a “tuck in.”

“We had already a regional presence in Miami,” he said. “But we found a business that could fold in nicely with our regional operation in Miami.”

The buyout of GreenPoint is the third in 2019 alone — CompassMSP also has made five other acquisitions since 2017.

“When I do acquisitions, I have two objectives,” Praschak explained. “To never lose a client as a result of an acquisition and to never lose an employee — and I’m happy to say we haven’t so far.”

So what’s the strategy behind buying this many companies?

“Our strategy is to grow organically and inorganically,” Praschak said. “Inorganically, I’m looking for a couple of things … One is geographical expansion. Typically we start a new geography with an acquisition. The second thing is strategic skills that I can bring in and leverage in other regions as well.”

He noted that the acquisitions of the Pennsylvania and New Jersey companies were “primarily geographical” as well as based on …

… culture, strategy and skills.

CompassMSP isn’t done, either. Praschak said he’s still looking for more acquisitions.

“As we execute our strategy, I’m trying to go more and more vertical. I am looking for skill sets that ultimately give me what I would call wider business application knowledge in specific verticals,” he said.

“We’ll continue to do geographical expansions and tuck-ins as we go. Even though I’m in a region and I’m investing in organics like sales and marketing people, it seems as though we’re getting great opportunities as we make a presence and people want to join in. We’re always looking for tuck-ins for geographies where we are.”

Recent M&A Activity Among MSPs

CompassMSP isn’t the only MSP making moves with mergers and acquisitions.

A Techaisle survey found that 35% of MSPs foresee mergers and acquisitions in their three-year plans. Among the 2019 Channel Futures MSP 501 winners, which ranks the top MSPs in the world, 20% say they acquired one or more companies in 2018, and a full 42% say they plan on an acquisition in the next year.


CompTIA’s Carolyn April

“One of the big trends in the MSP space over the last five years – three especially – has been M&A activity,” said Carolyn April, senior director at CompTIA. “Larger MSPs scooping up smaller, regional MSPs, or even technology vendors like large manufacturers that are adding an MSP component to what they do.”

She noted that these larger technology vendors are likely to buy an existing MSP rather than try to build a managed service into their own company from scratch.

“It’s certainly a trend,” April said.

Three acquisitions in six months — what CompassMSP has done — is ambitious, April said, but it’s not out of the ordinary considering the broader trends in the industry right now. She said much of M&A activity likely has something to do with MSPs trying to cultivate relationships with SMBs as opposed to just dealing with a department of a larger enterprise customer.

To accomplish this with SMBs, April said MSPs’ options are either “to open up regional offices and create little mini MSPs all over the country. Or they can acquire.

“They may often be acquiring to capture a vertical industry that they may not have expertise in,” she said.

Smaller MSPs may have a niche market they’re experts in and the larger MSP wants to get in on that market.

“They make the decision whether they’re going to do it organically and create and build their own practice or they’re going to acquire somebody,” April said. “And that really depends on their business model and what works best for their finances, cashflow and capabilities.”

As for what’s motivating all this M&A activity in the first place, April said it’s not unusual.

“It’s the arc of any industry; the managed service provider space is maturing,” she said. “It’s been around for well over a decade now, so it’s left its infancy stage and now has reached certain plateaus.”

She added that this is just something that happens in any industry, not just among MSPs. Once an industry matures enough, you will see a lot of M&A activity as businesses try to find new ways to grow.

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