A Surprise Buyer for Managed Services Providers

Consolidation continues in the managed services market, where large MSPs, vendors, telcos and other types of companies have stepped forward to acquire smaller MSPs. But in some cases, those small MSPs may be overlooking a potential bidder. Who is the potential buyer? Here’s the surprise answer.

In some cases the answer is your own employees. A case in point: IT Solutions, a well-known MSP in Philadelphia, is an employee-owned company that leverages an ESOP (Employee Stock Ownership Plan). CEO Ted Swanson discussed the ESOP strategy a bit during the recent TruMethods Schnizzfest conference in Philadelphia. According to the IT Solutions web site:

So how exactly can an ESOP work within an MSP? The answer to that question certainly varies from company to company. But let me set up a hypothetical scenario:

That’s where an ESOP potentially enters the picture. In the hypothetical example, the CEO could sell a minority share of the company — say 40 percent — to his or her employees. A bank could fund that purchase, and the purchase could be paid back from profits. (Here’s some info about such a scenario, called a leveraged ESOP).

Of course, I’m greatly simplifying how a potential ESOP can work. And there are numerous alternatives I haven’t covered. Wikipedia suggests that there are about 11,500 ESOPs in the U.S. covering 11 million employees, almost all in closely held companies. For deeper details check in with your accountant and financial advisors.

So…

I don’t have the answers to those questions. But we’ll continue to watch MSPs like IT Solutions closely. The company proudly promotes employee ownership on its website. And I suspect that gives customers peace of mind about IT Solutions’ staying power.

Another Approach

On a somewhat related front, we’re seeing some privately held technology companies extend stock ownership to employees. ConnectWise, for one, in May said it was “sharing its continued success with the disbursement of more than $3 million in company stock to its employees.” All ConnectWise employees own a stake in the company, CEO Arnie Bellini noted in a prepared statement.

If ConnectWise ever launches an IPO or gets acquired, those shares ensure employees will participate in the event. However, ConnectWise does not have a specific timetable or immediate plans in those areas. “But if and when something like that does occur, we want all of our employees to be able to participate,” said Jeannine Edwards, director of community at ConnectWise.

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