Join Hartland Ross for a discussion of what you should be considering before endeavoring to grow your managed service provider through an acquisition.
Host: I’m going to pass control over to Hartland. And, Hartland is, with The Host Broker. These guys are essentially a brokerage business. They work with all different types of people that touch our space. So, MSP data center, security firms, that IP is really you name it, that touches our space and they work with them. What I really like, about The Host Broker is they have a wealth of knowledge. They can help you out throughout the process. And they also publish a weekly list of people that are looking to get, either bought or sold within our space. It doesn’t cost anything to get on this list. You simply submit your email address to them. They’ll add it to the list. It doesn’t have to be a business email address. And then if you do find somebody on the list that you’re interested with, you can use The Host Broker, but you’re also not, obligated to go through them.
So, if you find an opportunity locally through a networking group or something like that, you obviously are not restricted. So, a really great resource. I think that at the very least, if it’s something you guys are thinking about in the future, I think it’s worthwhile to get on that list. And, that way, you know, what’s going on out there and you might or might not be actively looking for something, but something might pop up in your area, or even some type of provider that could add a service to your existing offering. That’d be very easy to integrate. And, in both of the products that you guys are offering to your clients, so I’ll stop talking now, we’ll pass the, the roll, pass it over to Heartland to take control and share out his screen. Let’s see. Share. There we go.
Hartland: Perfect. Well, thank you very much. Good afternoon, everybody. And, thanks for jumping on the call today with me. Can everybody see my screen?
Hartland: Great. Okay. Thanks very much. So, I think for the introduction, I will, support everything that Will said. We have two sides of our business. The M&A side is really what I’m going to be speaking to you about today, but just so there’s no confusion. the, the company eBridge Marketing Solutions and, we have our, an agency, a marketing agency that supports every group that, we’ll just describe in terms of MSPs and data centers and, holsters and infrastructure providers, et cetera. And then we have, our M&A side, which, supports those same, groups, through growth through, through acquisition strategies, strategies, rather than, organic. So, there, my contact details are up here. please feel free to reach out if you have any questions. I’m also going to answer a few questions at the end here if there’s time. And, historically we’ve had a few that we can run through. We also operate the domain, the MSP broker. So, just kind of provide a little bit of clarity there. We have MSPs on the list as well as hosting companies. The Host Broker was, kind of a bit of a legacy name because historically there were a lot of hosting companies and, you know, laterally in the last couple of years, we’ve had a lot more MSPs joined as well. So, you’ll find a mix of both.
Hartland: Anyway, so, I just wanted to move along here and, provide, a little bit of a background. So, first of all, some benefits to this discussion. So, and, and some of these, your things that you’re going to have, considered already, but there may be some new points as well. So, being able to increase revenue more quickly than you might otherwise have been able to do, if you were simply growing out organically and, being able to enter into other markets, either, geographic areas or perhaps, vertical markets. So for instance, if you want to get more penetration into, the, the legal space or, for example, healthcare or something that you want to, either you’re already having some traction in, or you want to expand that this may be a route to go also, options, to be able to develop a, a broader portfolio of, of services, that can compliment some of the existing services you provide, and then be able to bundle those in a way that is unique, a way that provides a bit of a competitive advantage relative to obviously your competitors and offerings that you have now.
There also may be opportunities to be able to acquire some proprietary technology, so that you’re not necessarily having those licensing fees for some services. And, that may be a route that that’s, of interest to you to go, for some, services and, and then finally, eliminating competition by acquiring them. Now, this is really going to be, overly, useful strategy in large urban centers, but in smaller communities where there may only be a half dozen competitors, this may well be able to be a good strategy to kind of eliminate, not necessarily all our competitors, but a significant number. So, moving along, some other, benefits, increasing resources. So, if you don’t have the internal resources staffing, et cetera, you may be able to acquire some, groups that will have, the technical capabilities or the product knowledge that you might be seeking. So, that might be an interesting route to go. Also, buying power with vendors. So, not only will you obviously have additional buying power, but you’ll also be able to increase your buying power through potential, legacy pricing that other groups may have that you can take over. And then also, be able to reposition your business and kind of round out our products and services. So, there may be a bit of a strategic and messaging component to this as well.
Hartland: So, what are some of the considerations to look at here? So those are some of the benefits, and the obvious question is, well, do you have the cash to be able to do it? And you may say, well, I don’t have the cash. I’m not in a position to be able to do this. Well, there are different size opportunities, right? So, it’s not necessarily that you have to have $10 million to be able to do an acquisition. There are opportunities for smaller businesses that are selling for lots of different reasons. And if someone retiring or health reasons or marital reasons, or what have you, so lots of different positions, different businesses in different positions. And so, if you have the cash, that’s great. Obviously, that makes things easy, but if you don’t, there are options. You can go through the SBA process. You can obviously look for investors, there’s friends and family, and then, bank debt as well. So, lots of different routes to go.
Hartland: How easily and how well will the newly acquired a company integrate into your existing business. So, you should be thinking about how seamlessly you can do this, and are there going to be implications on the company culture. What about roles? Are there people who are going to be essentially duplicates or competencies that you already have covered in which case who would stay and who would go, as they’re going to be a brand discussion around some brands, that if they have, if they have multiple brands or even if there’s just one brand, which one will be, the primary one, will you divvy the brands up based on services, product offerings, geography, will you only retain one brand and roll the other one under it? These are some obvious questions too, to think about what implications are there from a sales and marketing perspective. Is there another office that you’re requiring and what happens to that? And then what about, applications, reporting systems, et cetera. So, how are those going to work? Are there other duplicates and, perhaps there’s some systems that they have that you may find are solving some of the challenges that you’ve had and other ones where, you know, you prefer, your kind of homegrown solution.
Hartland: So, does your team have the, the current skills to get you where you want to be? So, whatever your strategy is, do you have those skills in house? And if not, an opportunity like this may be able to give you the expertise that you need. And so, you can either choose to retrain your existing team or, by acquiring the other group. There may be some experienced personnel who can, roll out other solutions, solutions that you might have, you might have in mind that you want to roll out an offer, but don’t necessarily have the competencies.
Hartland: So, this might be a to go and, by no means, is this a comprehensive list, but, the last slide that I wanted to cover on arguably the most important one is, do you have a strategic plan? So, in going through this, have you thought about the benefits that an opportunity will bring to your business? Have you thought about the people and what about the processes and the products and services and how they will be integrated into the existing business? How will the new business combined business, how will you grow that? And is there a, what is the competitive advantage, have you developed a target profile, the type of opportunities that might be of interest to you? So, the size of the business, the number of employees, the skill sets that you’re looking for, geographically where my, these opportunities lie, and, and really use these as, ways of screening opportunities or filtering opportunities. And it’ll make the evaluation process for you a lot easier if you have given thought to this, because then either checks the boxes or an undoubtedly, it won’t check all the boxes, but it will check some of the boxes. And is it checking the boxes that are critical for you based on the strategic plan. So, certainly encourage you to create this in advance. And my thinking here with this presentation is just to be able to give you some things to think about before you get too serious about looking at opportunities. Having said that as we’ll adjust it, there’s, no cost associated with signing up for our list. And it might give you an idea of kind of what’s out there and, and, happy to have conversations with you about expectations. So, just think about what synergies you’re hoping to achieve, and is there a, is there a cost savings, are there cross sell upsell opportunities, et cetera? So, I’m happy to, as I say, chat with you more, in the interest of time, will is, wants me to keep things fairly brief.
Hartland: So, I’m happy to open it up to any questions here. again, contact details are on this slide and, if there’s something you think about afterwards, please feel free to reach out as well. So, we’ll, what are your thoughts?
Host: No, that’s great. I appreciate that, guys. If you have questions, feel free to ask them out, shout them out, type them in the chat, I’ll get things going. So, can you explain a little bit more about the list that you guys published? Is it strictly business names or what kind of details are included on that? And are you including things like size based on revenue, employee count, stuff like that?
Hartland: Yeah, so, there are lots of different sizes. We are generally focused on opportunities that are, I mean, I would say average, opportunities are, are high hundreds of thousands. But we have opportunities that are smaller than that. Certainly like, you know, even sub a hundred k in some instances, however, MSPs tend to be a little bit larger than the smaller opportunities. So, I would say a several hundred thousand to, you know, low one, maybe $2 million mark. Having said that we do end up with opportunities that exceed those. In some instances, if the opportunities are too large, then, we may not necessarily post them to the list and rather, you know, reach out to two groups, on a one-on-one basis. Company names are not provided in the listing for perhaps obvious reasons around confidentiality. However, if the listing peaks your interest and, through a nondisclosure process, you will end up receiving a package or a book of material to evaluate the opportunity. And, and then of course be able to have option opportunities to speak with the seller directly.
Host: Great. And if you guys on the chat, how to get added to the list, I believe they can email you Hartland, or they can go to thehostbroker.com. Is there a link on there if they want to submit their information?
Hartland: Yeah. Why don’t I just put it into the chat and, you can, I’ll give you the direct link to subscribe.
Host: Yeah, that would be great.
Attendee: Will, I’ve got a quick question for Hartland.
Hartland: Sure, go ahead.
Attendee: What is the average like broker fee or, you know, I’m sure you can’t just throw out a number but is there like a percentage of, the merger, the acquisition, the total revenues, like, how is the fee calculated on your side?
Hartland: So, the fees are tiered based on the size of the opportunity. And so, our sort of standard fee is 5% of a successful transaction. So, it’s entirely success-based. But, there is a tiered structure, which, over a million, descending scale, 4%, 3%, 2 and 1 for each subsequent 1 million.
Attendee: And do you guys specialize in MSP M&A or all small business seminar?
Hartland: It’s all IT services. So, when I, well, I say IT services. So, the list that we’ll read out in the beginning included, data centers, infrastructure providers, holsters, MSPs, and ISP. So, we don’t do there’s no restaurants or car dealerships or gas stations or anything like that. It’s entirely, IP services and primarily in the US but not only we do have opportunities, globally, but, for MSPs, obviously, geography is important and MSPs primarily are a US-based.
Attendee: So, two quick questions to follow that. Do you see a lot of activity at the a hundred thousand dollar level? And my other question would be, since you just mentioned MSP and geography, what do you consider a reasonable distance for the geography piece? That makes sense that from what you’ve done.
Hartland: Yeah. So, in terms of size, opportunities in the MSP space tend to be a little bit larger. So, we may have like a hosting opportunity or an ISP that’s smaller MSPs tends to be, as I say, a little bit larger. So, they’re in the kind of high hundreds of thousands, 6, 7, 8, 900,000, and up to, you know, obviously they go, there you go. Sky’s the limit type thing, but, we typically will not see opportunities that are exceeded 5 million the odd time. We’ll get a few that are a bit larger than that, in terms of MSPs, but, that’s the kind of, main window, I would say. In terms of, geography, it comes down to some degree, a bit of a personal preference, because if you have a partner for instance, to who could manage an office in another city, well, it may well be across the country and that’s fine. if you’ve got a business that you’re acquiring, that is turnkey. And so, you’re acquiring all of the staff, and then you may be able to run that remotely with a visit a month or a visit a quarter. If you’ve got somebody who’s heading that off those operations. And if there’s a strong history there, but if not, and you’re planning on being a very integral part of the team on a regular basis, then you probably want to have that business be pretty darn close to you. Where it’s going to come down to your tolerances for commuting, I suppose. But, it’s just kinda hard to, there’s no right answer. We’ve seen, companies acquire, far away, but I would say majority would be, close proximity.
Attendee: Okay, cool. And one more question, because I’m thinking of everybody’s time, what is the deal with, and it’ll just a little quieter. Everybody’s not just a selfish question. What is the deal with the emails that I know I get all the time, but the guys probably do too from like people that claim that they’re, you know, a veteran status and they have a degree and they’re trying to buy out companies and they want typically targeted you. I mean, I must get an email from this one guy once a month, and I’ve pretty much just put him in spam, but I’m like, is that a bang?
Hartland: Well, it was breaking up a little bit there, but I think I, what you were saying, you were saying, targeting this from this individual who’s claiming to have veteran’s status. Is that what you said?
Hartland: So, there are funding opportunities and options for groups that fall into certain categories. And, veterans is one, women, you know, Aboriginal Indian status is another, so there are groups that will satisfy, criteria to get preferential, lending opportunities. And so, I don’t know why they would necessarily be reaching out to you over other groups, but my guess is they’re got a list that they’ve created and are kind of continually hitting for opportunities. Certainly, buyers will be reaching out to you to look at you as a possible opportunity for them. And, of course you could do the same thing, back. I obviously can’t speak to this individual requests but, I would say that lots of them are legitimate. On the other hand, there are lots of people who are going to waste your time. And I guess, one of the things that we try to do is eliminate those groups, the groups that are simply a window shopping from those who are serious. But, it’s quite common. There’s a forum, that, is sort of known well known for this practice where there’s a lot of groups that really are very unlikely to close an opportunity or who are trying to low-ball you. And you’ll say, well, I’ll call, I’ll pay you if it’s $500,000, I’ll give you a 10,000 now and, $5,000 a month for the next X number of years.
Attendee: Okay, cool. Thank you.
Host: So, I guess my only other question that I would have in terms of like con commitment, right? So, we’ve got a lot of business owners on this call, for Navy guys who might be thinking about this. I mean, it sounds like this is a pretty involved process. It sounds like it’s a pretty big time commitment just from evaluating, going through, and completing the transaction, then integrating them. And that’s not even considering, I would guess if you’re doing some type of financing, like an SBA loan. So, I mean, what type of time commitment do you think this would be on average? I know it’s not the same for every business, but if some of these guys are interested in going down this path and then what do they need to be thinking about in terms of that?
Hartland: Yeah, I think that’s a really good question and probably a will one. That’s not given enough attention initially by, by, you know, new buyers who are not necessarily, familiar with the process. So, I’m not sure I can give you an exact, time figure, but I think that going back to my last slide around a strategic plan will certainly save that time, because if it’s clear what you want, then you’ll be able to eliminate what is not going to make sense for you for whatever reason. And as a result, you’ll be able to really hone in on opportunities that are going to be at least a potentially a good fit. So, with a series of a few quick questions, geography, services offered, et cetera, outside of what’s available in the listing itself, because you’ll be able to read that hopefully, make a quick decision on whether it’s of interest. But then beyond that, if they satisfy your criteria, I would say, within, anywhere up to two or three hours of an initial, evaluation of the material, and even that’s probably generous, you should be able to quickly decide, yeah, this thing’s potentially has legs or it doesn’t. And then scheduling a call with either me or the seller, to get further details, would probably, very quickly again, determine whether there’s an opportunity to go forward now evaluating it, to a yes or no is one thing. if you keep getting yeses and you got to go through continually digging deeper and going through financials and whatnot, obviously there’s going to be a further investment. I would say that it would be helpful if you had some partners on your side and namely, initially an accountant, a CPA to be able to review, financials. And if you don’t have the capability and will this may be part of your territory. But there are other groups that specialize in helping evaluate opportunities from a product alignment, from a culture fit, et cetera, and putting together a, and I’ve got a bit of a plan in terms of, whether the opportunity looks like it’s going to add strategic value or not. And, I think that, the other important point to make is that the smaller the opportunity, the fewer moving parts, if you were moving parts there just the less time it is to evaluate. Now having said that, the trade off is that, the larger opportunities have proportionately less time to invest. So, for instance, if it’s a $5 million opportunity, it’s not five times as much due diligence work as a $1 million opportunity. But nonetheless there’s last on the line. If you were to look at smaller opportunities. So, my suggestion, unless you’ve got experiences to go through and look at smaller opportunities first, it’ll just be easier. And, undoubtedly there’ll be lessons you learn as a result and a better to learn those on smaller opportunities where, the impact of mistakes is going to be less. So, I think, well with, you know, all to polled, this process shouldn’t be too onerous, but the further you go down the road, that certainly the more time it’s going to take to consult with the legal, the other group that I forgot to mention that you should have on your side, but that group doesn’t come in until you’re ready to negotiate an agreement.
Host: Got it makes sense. It looks like we’ve got a hand up.
Attendee: Yeah, thank you. So, I was a little bit late and might, you may have covered this and I may have missed it, but who do you represent in this transaction? The buyer, the seller?
Hartland: Great question. So, the opportunities on our list are a culmination of our sellers that are working with us and also, with, or whoever requested that we, be retained to help them source a potential buyer, but also opportunities that may come through other brokers. And, so, so our fee is paid by buyers. So ultimately, we would be working for you if you were a buyer. But the opportunities on our list may be, opportunities that have approached us. But they know that the buyer is paying the fee and we’re not double ending the transaction.
Attendee: Okay. Fair enough. That’s, that’s a little counterintuitive. Normally it’s represented by the seller, I guess I’m thinking of a real estate transaction.
Hartland: Yeah. So certainly, you’re not the first one to make that comment, but, in this space, it there’s precedents around this and, and buyers typically pay the fee. I mean, there are exceptions, but, for the most part buyers.
Attendee: Okay. And so your typical listing, well, how you arrived at a price and, and do you see that up front or you do you just see that, if you’re looking at, if you’re browsing listings, is that something you post with the listing as an asking price, or do you just post particulars like this, this much, annual revenue, et cetera?
Hartland: Yeah. So, good question. And I get that question where people say, well, why aren’t there, asking prices on any of the listings? And the simple answer for that is that a seller may have a price in mind. if the price is not a reasonable request, then we simply would not list them because it just doesn’t make sense to have somebody who’s asking for really non-market rates. And so, if they have, usually, what we’ll do is we’ll provide some guidance if they don’t already know that on what’s a reasonable expectation. And if they nod their head and say, yes, this is, you know, something in that range would be reasonable to me. then we would move forward with a listing. The reason we don’t put specific asking prices is because by and large, the vast majority of the listings, don’t have a specific asking price. They are looking for best offer. And of course, price is a function of, of a number of different things. First of all, there’s, there’s, the time value of money. So, if the payment is made largely in advance, our poor, sorry, I should say on clothes rather. So, for instance, if an 80, 90, a hundred percent of the payment is made on clothes, well, a seller will take a lower offer than if there are, if the seller is providing a financing. And so, versus for instance, like 30 or 40% on clothes with the remaining to be paid in equal installments over 12, 24, 36 months. So, price is certainly a function of that. It’s also a function of rapport and, and alignment. Sometimes, sellers are not necessarily entirely motivated by money. They may be motivated on, finding a good fit for their customer base to look after their customers. And so, they may actually decline a higher offering favor of another group who they believe is a better fit for one reason or another, with being able to support their customer base. So, a bit of a long answer to your question, but prices are not listed for those reasons. Having said that, all of them are aligned with the kind of market rates, which typically will, will vary depending on the business, but, say, you know, as a, kind of a ballpark three, three and a half, four times as a multiple of EBITDA, but those numbers could go up for some businesses in some instances.
Attendee: Okay. And so, from the point that we sign up, how long is it going to take to get a login to view listings?
Hartland: We vet every subscription, therefore you don’t get immediate access. You’ll get the mailing on Wednesdays, and you’ll be added to that list. So, there won’t be any issue here, but you can imagine we get opportunity requests from, subscribers, frankly, all over the place. And, people put in fake information and, just email might be valid, but it’s a Hotmail address and whatnot. So, we’ve at them all. if, if I see that come through and you want access, more quickly, I will be happy to reply back to you with the password immediately. In fact, I can even give it to everybody. You know, what I’ll do after we’re done here, I’ll put a link in the subscription, in the window and then chat window, and then also put the password in there, because, I’m not concerned about anybody on this call. The only advantage to subscribing is you’ll get notified of the updates. Otherwise, you’ll have to proactively continually check back and, you probably end up, you know, over time forgetting about it. So, this helps you to remind you when there’s updates to the listings, which generally happens weekly, but we do skip the odd week if there’s all a day or something.
Attendee: Thanks a lot.