There is a wall of money waiting for the right sort of MSP with the right understanding of the market, say one serial M&A entrepreneur.
Talking at the Managed Services Summit North on October 30 2019, Peter Sweetbaum, CEO of IT Lab talked about how the MSP can grow, how it can make itself attractive to buyers and what growth means.
“There is a huge amount that this industry will continue to do for customers. Of course, we have to evolve and change and scale does mean lot in this market - then there is innovation in terms of how you serve, what you serve and how you engage with customers; the systems and tools you use.”
It is a tougher world and everything needs to be right. “IT Lab is £75m in turnover and 750 people – we have gone through a growth spurt in the last five years.”
“What we are seeing in the market, in M&A and what is in the mindset of buyers and private equity is interesting. Do not underestimate the appetite that private equity funds have for this space.”
Both buyers’ and sellers’ perspectives are useful to know – for anyone.
And value depends on how valuable you are to the customer.
“For our larger customers, we will typically have five core service lines into them. And this makes it hard to dislodge us, so it is important to have that breadth of capability.”
“And size matters – usually measured in EBITDA But as you do that you increase your value, and edge into that place where it is relatively common, but because of the scale – £500,000 EBITDA is attractive and as an objective this is a start point, then there are different thresholds – as you get to £1m-3 m EBITDA and there is not a lot of them. When you get to £5m of value you are fundable and private equity can get involved. When you hit ten million, you have hit a trigger because you are at a scale when you get traction. “
“The more bleeding edge you get, however, the valuation can vary greatly. It depends on what you do and how progressive you are.”
“The fundamentals still apply – do you have customers, do you have cashflow, do you have profits?”
