Greg Praske, TCSP Tackling Sell-Side M&A Advisory for Tech AdvisorsGreg Praske, TCSP Tackling Sell-Side M&A Advisory for Tech Advisors

Tech advisors mulling a sale of their business shouldn't go it alone.

So say Magnify Group founder Greg Praske and Technology Channel Sales Professionals (TCSP) president Bill Power, who are hosting an upcoming presentation for agent leaders about factors to consider in the sale of their business. And there are many more factors than partners might tend to consider, Praske and Power said.

Praske and Power, who co-founded the technology advisory firm ARG in the 1990's, are teaming up again as Praske launches Magnify to conduct sell-side advisory services on behalf of agents. Praske, who retired last year from his position as CEO of ARG and is serving as its chairman, said he was looking to give back to the industry and help fill a gap he sees. That gap is in helping companies in the niche technology advisor/agent (TA) model to sell their businesses. The industry is unique partly because of the role residual commissions from vendors play in partner revenue, and the unique web of relationships agents rely on in their day-to-day business. While dozens of agencies have sold their books of businesses in the last five years, Praske and Power said partners have lacked information on the process.

Greg Praske

"There's just a dearth of sell-side advice in this space. You can have the generic sell-side advisors, but if these are $5 million transactions, they don't appeal to the large investment banks," Praske said. "So then you tend to be local, and they tend to just not know the industry."

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Power leads TA peer groups, where he says the topic of M&A dominates conversation two-thirds of the time. But often, he adds, M&A conversations fixate on multiples. There's much more to the process than that, Power said.

"They need to know that this is a complicated process. There's a lot of money to be made and a lot of money to be lost if you don't do it right," Power told Channel Futures. "And the only ones out educating are the buyers. And I don't want to be educated by the buyer, quite honestly. I want to be educated by the seller."

TCSP's Bill Power

Praske adds that other sell-side advisors have popped up recently, including Intelisys co-founder Rick Dellar and X4 Solutions founder Steve Braverman.

The TCSP started out as an industry watchdog with a focus on advocating for the agent channel in the face of FCC regulations that threatened agent commissions for rural healthcare customers. The group has evolved to offer a set of services catered to TA leaders, including a tool for vetting potential sales hires and discounted HR outsourcing.

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TCSP will host the free webinar, titled "M&A Lessons Learned for Trusted Advisors," March 5 at 1 p.m. Eastern Time.

Greg Praske, ARG and M&A

Praske is not stranger to agent consolidation. ARG under his leadership acquired five agencies over the years, including GNS and Freedom Solutions Group. But ARG also was courted by suitors of its own, and Praske said the company went through a deep process evaluating a potential deal with a private equity investor.

It was a family fund for "one of the most world-renown" PE investors, Praske said. Praske said the prospective buyer was looking for a high level of information on ARG and various facets of its business. ARG had much of that information on hand, thanks to Power's work building ARG's database decades ago.

And the parties had gotten quite close to a deal, but it ultimately fell short.

“Even when you get to the final stages, if the deal doesn’t align to your motivations, you can’t proceed," Praske told Channel Futures.

Key Advice for Sellers

If there's more to life than EBITD and multiples, what else is there?

Some of the other elements buyers are looking for include growth rates, revenue mix, cost of sale and details about their customer base. EBITDA growth rate, in particular, has proven particular decisive in the offers partners have received. An agency with a growth rate of negative 10% might earn 2 or 3-times cash on cash return for the PE investor, whereas an agency growing at 10% or more could generate 10-times or more. Simply put, that's because the equity investor knows it won't need to put additional funds into a base that is already growing to begin with.

Praske also pointed to customer mix – namely, that investors are looking for more breadth in the agents' client base.

"It sounds like it shouldn't be a surprise, but the vast majority of these agents have the majority of their revenue tied up in at most a handful of clients. Like literally five to ten clients," Praske said. "And that poses a pretty big risk for a buyer. In this industry, everybody likes to talk about their big deals, and that's wonderful. But if you only have a few big deals, and that is the majority of your revenue, you need to prove to a buyer that that's stable revenue."

Praske and Power also urge partners to assemble a team for this process, including a sell-side advisor or investment banker, legal help and accounting.

"Our position is you’re missing the boat if you try to do this yourself," Power said. "It's just not smart, especially since you're going up against the big boys."