MSPs: For Sale But Not On Sale
I caught up with Mike Jones, CEO of ETG, last night at the Ingram Micro Cloud Summit in Dallas. Jones, as you may recall, leads one of North America’s most successful managed services providers focused on the health care vertical. During a discussion about merger and acquisition activity, Jones offered this gem: “We’re for sale but not on sale.” What did Jones mean? Here are some clues.
Like many MSP executives, Jones is receiving a range of merger and acquisition (M&A) inquiries from traditional MSPs, investors and vertical market specialists. But here’s the twist: Jones is surprised that a lot of potential buyers don’t really understand his business.
At least one inquiry involved a company that wanted to buy a regional MSP for geographic coverage. Jones’ reaction: ETG isn’t a regional MSP, it’s a vertical market MSP focused on health care. So, he’s only willing to speak with potential buyers who go deep — really deep — in the health care vertical.
Moreover, Jones isn’t soliciting bids for his company. Instead, he’s simply building a business — and his momentum in the health care vertical seems to be attracting potential suitors. I could be wrong, but it sounds like Jones is on pace to double his business in the next year or two…
With that growth in mind, Jones isn’t ready to listen to low-ball offers. As he put it, “We’re for sale but not on sale.”
Translation: It sounds like Jones thinks vertical market MSPs that execute on their business strategies can demand premium valuations. When I asked him to pinpoint ETG’s valuation for me, Jones smiled and politely declined to answer.
Do I think Jones is shopping ETG around to potential buyers? Nope. I think the inquiries are inbound, not outbound. And as my dad — a real estate veteran — often tells me, “everything is for sale. It’s just a matter of determining the price.”
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“Vertical-izing” your MSP business is one of the “valuation” legs of the stool. Along with profitability and growth as the other legs, is preditability. Half of preditability is recurring revenue, the other half is a sales/marketing engine that has a track record of consitently performing. I hear this all the time from VARs/MSPs trying to sell. “Todd, I constantly get dinged for this!”