Evergreen’s Mission to Create Regional MSP Powerhouses Is Redefining Managed Services
Bay Area investor Evergreen Services Group recently purchased NetGain Technologies, a longtime member of the MSP 501. This month’s deal was the 12th investment made by Evergreen this year.
Previously, the San Francisco-based investment company made investments in Wolf Consulting, Executech, Jenlor, Interlaced, and Integritek. Since making closing these deals, Evergreen companies have gone on to make additional ones. In early December, Executech announced its acquisition of Z7 Networks, a Seattle-based MSP. The deal gives Executech, a Rocky Mountain-area powerhouse based in South Jordan, Utah, a foothold in the fast-growing Pacific Northwest region.
This is precisely what Evergreen has envisioned — a catalog of strategically position, regionally based MSPs.
For perspectives on Evergreen’s strategy, as well as prevailing market trends, Channel Futures reached out to Ramsey Sahyoun, head of mergers and acquisitions at Evergreen, whose distinct investment strategy is helping to redefine the MSP market. In interviews with Sahyoun and Jason Jacobson, CEO of NetGain of Lexington, Kentucky, we gather insights on the direction of Evergreen, the allure of recurring revenue and the qualities that attract outside investment.
We start with Sahyoun, who met his business partner, Evergreen CEO Jeff Totten, while working at Alpine Investors in San Francisco. Alpine specializes in software companies and B2B services, in particular. After some time at Alpine, Totten and Sahyoun saw an opportunity to establish a distinct position in rapidly expanding market for managed services. They persuaded Alpine to create a new fund – the company’s sixth – focused on MSPs. Unlike traditional funds, Evergreen invests in companies for the long haul. Thirty-six-month payouts? Evergreen knew that wasn’t going to happen with MSPs.
“We wanted to build a permanent holding company,” says Sahyoun. The inspiration for calling the company “Evergreen” came to him after attending a Berkshire-Hathaway Inc. annual meeting in Omaha, where the virtues of predictable, monthly recurring customer revenue (MRR) were praised time and again.
While at Alpine, Sahyoun and Totten saw the market for technology services shift from project-based work paid for with capital investment dollars to cloud-based digital services paid with operating expense funds. The seismic shift to more predictable, scalable and profitable revenue streams particularly grabbed their attention. When Sahyoun and Totten realized that the economics of most SMBs would never allow these small businesses to afford top technology talent to help them achieve their business aims, they began to see a long runway for MSPs that could.
Evergreen estimates that there is roughly $10 billion in managed-services revenue generated among SMBs every year in the U.S. While some big companies, including All Covered and Sirius, which was ranked No. 1 in the 2018 MSP 501 study, have established leadership positions, the majority of business done in the SMB space is captured by roughly 20,000 or so small, independent players.
Evergreen’s hunch was that more of the total market spend could be captured by a set of very capable regional players who maintained a high degree of customer intimacy and who had the ability to implement best practices and scale more efficiently.
After some research, Evergreen’s hunches were confirmed. Whereas most MSPs were growing at a rate of around 9 percent annually, larger, more capable ones were increasing their annual sales at a rate of …