TUCBrands Nitro IT Acquisition Deal: A Closer Look
Ever since TUCBrands (and The Utility Company) embarked on a new growth strategy 18 months ago – expanding out from selling franchises to creating MSPXchange, a subsidiary designed to convert existing “micro-MSPs” into franchisees — the deals have typically been small ones. TUC President Mark Scott (pictured), who also happens to be the co-founder and former CEO of N-able says that deals are typically for MSPs with under $1 million in revenue. “That’s our sweet spot,” he told MSPmentor.
But the Nitro IT Business Solutions deal which closed on Feb. 29 was a far cry from the usual TUC acquisition formula. With $20 million in revenues, 50 employees and more than a hundred SMB customers, Nitro ranked 94 on the MSPmentor 100 list for 2012, just a few notches down from where The Utility Company itself ranked at 91.
According to TUCBrands’ own blog, the resulting company will have $30 million in revenue and employ about 80 people.
Have Mark Scott and The Utility Company changed their strategy? Not at all, Scott told MSPmentor, but the Nitro deal is indeed an exception to the typical deals that TUC pursues.
What made Nitro different? There were a few things that attracted TUC to the Ottawa-based Nitro, and its location was one of them. With both companies based on Ottawa the combination of the two creates a much stronger back office. Nitro’s vertical focus in healthcare and non-profits also made it stand out from the crowd. Plus, the company has a deep bench of vendor-certified technicians on staff, all complementing TUC’s existing strategy. Not to mention Nitro’s founder and CEO Larry Poirier had been an investor in Scott’s previous company, N-able, and was also a president of Ingram Micro Venture Tech Canada.
Scott describes The Utility Company’s original strategy as a franchisor of managed services companies, selling the franchise to those who wanted to get into the managed services business. Then 18 months ago the MSPXchange acquisition program was added to the mix, effectively converting acquisition targets into franchisees, or buying them outright if the owner was looking for an exit strategy. TUCBrands became the parent company of The Utility Company and the M&A division, MSPXchange.
Here’s how Scott describes the difference: “Franchise is still organic growth. You can buy into our franchise system. We do centralized marketing, sales, billing and collection of customers out of our headquarters. Your main role is business development and account maintenance.
“To accelerate the model, we wanted to create a way for an MSP to talk to us. You’ve been on this MSP treadmill for a while. Are you interested in joining forces with us? We’d convert their business into the TUC Brand.”
In the conversion model the owner becomes a franchisee and receives a conversion payout based on the number of customers they bring to the business. In return they get an exclusive territory.
“It’s not a roll up strategy. That’s a word I don’t use. It’s an alternative partnership structure for an MSP,” Scott said. Many acquisition strategies are targeted at MSPs with $2 million to $5 million in revenues. TUCBrands’ MSPXchange targets much smaller MSPs.
And it probably will stay much that way going forward. Scott says TUCBrands has about 10 to 15 potential acquisitions in the pipeline for companies that range from $300,000 to $5 million in revenues.
“There wouldn’t be an acquisition on the scale of Nitro, but there are some regional MSPs that are $5 million to $10 million. We definitely will take a look at it.”