Best Buy and mindSHIFT: Analyzing MSP And Cloud Services Valuations
Now that Best Buy (BBY) has completed the mindSHIFT acquisition, let’s take a much closer look at the financial aspects of the managed services and cloud services acquisition. MSPmentor has gathered some hard-to-find financial metrics about mindSHIFT’s business. Examine the numbers and you may get a better feel for managed services provider (MSP) and cloud services provider (CSP) valuations.
Best Buy and mindSHIFT: By the numbers…
1. Valuation: I believe the buyout valued mindSHIFT at roughly 10 times to 12 times EBITDA (earnings before interest, taxes, depreciation and amortization). That figure is based on chatter I’ve heard over several months. Assuming my figures are in the ballpark, that’s a healthy premium. I doubt most MSPs could fetch that type of multiple.
2. Price Per Managed Desktop: mindSHIFT oversees 25,000 customer desktops within its managed services business. I don’t know how many servers are part of that infrastructure. So Best Buy essentially paid $6,680 per managed desktop to get a hold of mindSHIFT.
3. Price Per Employee: mindSHIFT has approximately 500 employees. So Best Buy essentially paid $334,000 per employee to acquire mindSHIFT.
4. What Were MindSHIFT’s Margins?: mindSHIFT generated roughly $100 million in revenues and $13 million in earnings for 2010, according to comments CEO Paul Chisholm made in mid-2011 at the TruMethods Schnizzfest conference. At the time, Chisholm said 75 percent of revenues were recurring, and 45 percent were cloud-related. Also: Half of the company’s growth had come from acquisition and half involved organic growth.
5. Valuation, Part II: Now, let’s assume mindSHIFT’s revenues and earnings grew five to 10 percent in 2011. That would put revenues at about $105 million to $110 million for 2011, and earnings at $13.65 million to $14.30 million for 2011 — right around that 10X to 12X EBITDA multiple I mentioned in bullet 1 above, which brings us back to the $167 million purchase price for mindSHIFT.
Admittedly, MSP valuations vary wildly. But using the variables above — mindSHIFT’s top-line revenues, earnings, employee headcount, and managed desktops — you can begin to analyze how well you’re performing vs. mindSHIFT and maybe even what your company is worth.