Critical M&A Lessons from Day 1 at Kaseya’s Connect IT Global 2022
Here are the top five key takeaways from the M&A Summit pre-day event.
June 21, 2022
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Fred Voccola, CEO of Kaseya, launched right into talking about the theme of the day, the state of mergers and acquisitions. That, and consolidation in the space.
The software provider receives a good amount of metadata from its customers from what Voccola calls “pulse checks.” These checks are meant to keep a tab on what partners are seeing in the market, what products they’re using, who is growing, etc. In terms of M&A, the overarching question/sentiment from partners often points to, “How do I do this, and how do I do it well?”
Voccola also said there has been a steady increase in sophistication in the M&A process. There has been quite the frenzy in the market in the last few years, but partners often don’t know where to start. Therefore, it is vital to think of it as part of a rollup strategy. Is this effective from a culture standpoint? What about performance? Overall strategy and growth perspective?
“M&A is here to stay,” said Voccola. “However, it is also hard to do well. Most mergers and acquisitions don’t deliver; the desired results are initially hard to achieve. Seventy-nine percent of acquiring MSPs report “success” in their acquisitions. Forty-one percent of acquiring MSPs report that their license count grows less post acquisition of the acquired entity over a 24-month span. This, quite simply, speaks to the readiness (or lack thereof) of the company in question.”
Voccola said if you buy a company that isn’t necessarily ready, if that partner doesn’t want to “dance,” it will be hard to make it work. Failure, in terms of M&A, is a lack of target value creation. Value, according to Voccola, is created via M&A in several ways:
Growth — accelerate customer and local footprint growth
Expanding EBITDA margins
TAM expansion — multiple arbitrage
“Expansion and retention are also key,” Voccola said. “The majority of profitable organic growth comes from expanding one’s customer base.”
Kathy Wagner, CFO, Kaseya, and CJ Wimley, president and CCO, have both been involved in a number of acquisitions. In a keynote, Wimley asked Wagner for her take on M&A from a financial standpoint.
“Whether it’s a big or small company that you’re acquiring (from a Datto to a ‘two guys in a garage with a great idea’), you must have your financials in place,” said Wagner. “There are a few ways to look at this. Work on projections. What are the key metrics you’re using to value your business? Look at your efficiency, and always keep your profitability top of mind. You must care about the bottom line, which is sometimes difficult, but is absolutely vital. Also pay attention to profitable growth.”
Wagner said an MSP that is starting to think about selling or being acquired should get a head start on these things and begin tracking them now.
“Time kills deals,” warned Wagner. “The faster you can go, the quicker you can get money in the bank and you’re off.”
A partner must also have a rock-solid operational plan that can demonstrate growth. That’s what your valuation is. Wagner also advised partners to “disentangle.”
“As business owners, if you don’t want to sell your company, you have flexibility. When you’re starting to think about selling your company, disentangle your personal life from your business. Separate your cellphone plan, bills, company car, whatever it is,” she said.
In a panel, Gary Pica, president, TruMethods, Kaseya, led a discussion with people from various sides of the fence in terms of their M&A experiences. Ken Roulston, managed director, CMI; Stephen Zetser, director of consulting, NorthStar Technology Group; and Jim Lippie, CEO, SaaS Alerts, all shared their insights.
Pica’s first question centered around what has changed over the past year or so in the M&A landscape.
“A lot has changed in the last six years overall,” said Lippie. “Within the last year, we’ve seen that there are a lot more MSPs looking to sell.”
“The pace has changed,” said Roulston. “There’s a lot more money that has come into the marketplace. People are trying to establish dominance in the marketplace, and quickly. Deals have to be done quickly because it’s so competitive out there. After the pandemic, there was an impact — pent-up demand. Now there’s an almost frantic rush.”
So have deal structures changed?
“The debt markets are changing too,” said Lippie. “A lot of M&A has been financed by private equity firms. Most of the time, people put half down, borrow half. M&A has been so frothy, and debt has been so cheap. This drives up valuations. There’s more money to go around. We will likely now see valuations cool off because of that dynamic.”
Pica also asked what kind of red flags one looks for to rule out potential targets.
You have to ask, strategically, does it make sense, technically, culturally — will it mesh?” said Roulston. “You must establish and cultivate a good relationship with the principal person on the other end of the deal, because you want a business that shares similar values. Most acquisitions tend to fail because cultures wind up not being compatible. That’s hard to realize initially, so you have to establish through that owner what the culture of the business is.”
“When NorthStar acquired us, I wanted to be part of the team, culturally,” said Zetser. “Have those conversations early. Ask, ‘Who are you? What are your values?’ The money talk came later.”
Rob Stephenson, CEO, Thrive, gave a talk about the importance of a unified platform when it comes to M&A. The theme, which was a common onne throughout the day, was look before you leap.
“There is a strategy to this,” said Stephenson. “Don’t go too fast; it is so important that these deals be done right.”
Stephenson cited a six-part strategy in order to achieve effectiveness when it comes to buying or selling.
Have a plan.
Measure four times, cut once.
Automate every possible process.
Have dedicated teams.
Everyone has a day job. If you’re not able to orchestrate or afford this, establish committees and a process.
Stress test all of your systems for growth.
Align the plan with your budget and finance team.
Stephenson stresses the importance of laying everything out well in advance. As with everything, there are lessons to pay attention to when contemplating buying or selling.
“Customers are usually the biggest bottleneck,” said Stephenson. “Give them deadlines and make sure you discuss all new products, services and changes well in advance of the re-contracting period. Also, evaluate all vendor contracts, and give ‘tool-huggers’ the time, traininng and access to Q&A to get them on board.”
Rick Jordan, CEO and founder of Reachout IT, delivered a rousing talk on what it takes to scale a company and how to grow quickly in this new (ish) MSP landscape.
With a solid and varied background with M&A, Jordan hammered home strategies that can be implemented at any level and company size. He also emphasized that the road to M&A is not an easy one.
“You have to do something different,” said Jordan. “This is a choice. There is hard work ahead of you. But a year from now, imagine where you could be. The owner carries the emotional weight of the business. It can be brutal. Everyone feels that, and it’s compounded when starting this type of journey.”
There is a lot of private equity activity happening, said Jordan. Valuations have never been higher than what they are right now. If you’re looking to buy or acquire, there are a lot of thinngs that you have to look out for. It’s a process, and it requires … demands diligence. You have to face the unknown.
Rick Jordan, CEO and founder of Reachout IT, delivered a rousing talk on what it takes to scale a company and how to grow quickly in this new (ish) MSP landscape.
With a solid and varied background with M&A, Jordan hammered home strategies that can be implemented at any level and company size. He also emphasized that the road to M&A is not an easy one.
“You have to do something different,” said Jordan. “This is a choice. There is hard work ahead of you. But a year from now, imagine where you could be. The owner carries the emotional weight of the business. It can be brutal. Everyone feels that, and it’s compounded when starting this type of journey.”
There is a lot of private equity activity happening, said Jordan. Valuations have never been higher than what they are right now. If you’re looking to buy or acquire, there are a lot of thinngs that you have to look out for. It’s a process, and it requires … demands diligence. You have to face the unknown.
KASEYA CONNECT IT GLOBAL — Kaseya kicked off its annual Connect IT Global 2022 event Monday at the MGM Grand in Las Vegas.
The four-day conference started with an M&A summit. The pre-day event featured keynotes, panels and sessions focused on how to increase the value of partners’ companies. The sessions gave MSPs crucial and actionable insights into the rapidly growing industry consolidation trend — regardless of whether they are considering a purchase, a sale, a merger, or just want to learn how it will affect their business.
“The MSP space is experiencing substantial growth,” said Fred Voccola, CEO of Kaseya. “M&A, and the conversation around it, is a massively important thing.”
The event boasts roughly 2,500 attendees, including those in-person and virtual.
Click through our slideshow above to check out the highlights from day one of Connect IT Global 2022.
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