MSP Offers Lesson in ‘Growth by Acquisition’

When Jamison West decided around the turn of the decade that he needed to grow his Seattle-area managed services provider (MSP), acquisition seemed the best route to more customers and expertise.

In the years since, West’s Arterian purchased three MSPs before it too was acquired, each transaction bringing its own lessons and varying results.

Arterian’s experience illustrates the challenges of growing through acquisition, a process that offers both the opportunity to rapidly scale up and inherent risks.

“Growth through acquisition is really a way to grow your company faster,” said Rick Murphy, CEO of Cogent Growth Partners, which represents buyers of MSPs and handled all four of Arterian’s transactions. “It’s not just about (acquiring new) customers; It’s really a great way to get new talent and new expertise.”

Picking up new rock star technicians was certainly among West’s goals as he approached all three deals.

In the first deal, which closed in 2010, West bought out Brad Benner, an MSP owner with whom he had a personal friendship.

“Our friendship helped because we trusted each other to be fair,” West said. “We both walked away feeling that it was absolutely equitable and fair.”

Under the agreement, Benner stayed on board as an employee, collecting a salary and earn-out, while helping complete the merger.

Joining of the businesses was further facilitated by the fact that Benner and West commonly collaborated on improving their respective companies, largely sharing a culture and often employing similar strategies and technological solutions.

“I trusted Brad,” West said. “I knew he had good people and I knew he had good clients. It did make it very, very easy.”

Buoyed by the success of that acquisition, West was all ears when another MSP approached him about buying them out. The seller in that deal did a brisk business in one-off IT projects, but lacked the managed services practice and its attractive recurring revenue model.

“They had good engineers,” West said. “I got immediately this big chunk of revenue and 10 staff.”

But while he says he doesn’t regret the purchase – he referred to intangible benefits – West stopped short of saying he would do the deal again.

“We have one of 10 employees left over from that acquisition and a couple of clients,” he said. “It wasn’t accretive to our business.”

The third acquisition, West said, nearly took down his business.

West found a company owned by a personal acquaintance he wanted to bring aboard to head up Arterian’s sales team.

All sides knew the seller’s bookkeeping was less than ideal, but West’s motivation to do the deal was strong and he and his advisors believed they could work around the due diligence concerns.

That turned out to be wishful thinking.

“I think there were signs and flags that we thought we could overcome,” West said, adding that he remains friends with the seller. “I don’t think there was bad intent. At the end of the day, the diligence didn’t quite add up.”

“The numbers weren’t what both parties thought they were,” he said. “Culture was shockingly different.”

Within months, West was forced to take drastic action to save Arterian and quickly unwound the deal.

Though he might have moved more slowly, West is grateful for the lessons he’s learned through his history of transactions – even if some of them were picked up the hard way.

His latest deal – Arterian was acquired by Aldridge this year – was a lot more like his first than the last two, he said.

The cultures and technology have come together in a complementary way and Arterian is now a cloud-focused subsidiary of Aldridge, with West as the division’s president.

“Here we are half a year later and everyone is very, very happy,” he said.

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