From 0 to $22M: Ken Rolston’s MSP Acquisition Playbook (and 10x Exit Lessons)
Today, we’re diving deep with Ken Rolston, a seasoned MSP operator who’s been through the M&A wringer more times than I can count. Seriously, he’s acquired 11 MSPs, exited twice, and is now the mastermind behind MSP Manda. We’re talking about the lessons he learned in the trenches while building his business from scratch to 120 employees and $22 million in revenue. Ken’s got the scoop on what works, what doesn’t, and how to successfully buy, sell, and integrate IT services companies. So if you’re curious about navigating the wild world of MSP mergers and acquisitions, you won’t want to miss this chat!
Title: From 0 to $22M: Ken Rolston’s MSP Acquisition Playbook (and 10x Exit Lessons)
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Looking to sell your MSP or partner to take your business to the next level? DataTel actively seeking to acquire quality MSPs to it's capability & client base. If you own an MSP generating more than $1M in revenue annually seeking and wanting a change, contact ben@datatelco.com .
Takeaways:
- Ken Rolston shares his journey through the MSP world, from engineering to exits.
- The podcast emphasizes the importance of culture during mergers and acquisitions.
- Ken highlights that navigating MSP M&A requires patience and understanding of the human factor.
- A cyber attack challenged Ken's company but also demonstrated the importance of customer retention.
- MSP owners need to understand the M&A process better to grow effectively and sustainably.
- Ken's new venture focuses on helping MSPs navigate the M&A landscape with practical insights.
Transcript
Foreign.
Speaker A:Welcome to the MSP Owner Podcast where we dive into the journeys of MSP entrepreneurs, unpacking the challenges, wins and insights to help you build, scale and exit your business.
Speaker A:Today we've got Ken Rolston, a veteran MSP operator and M and a strategist who's acquired a large 11 MSPs, exited twice, and now runs MSP Manda out of Belfast, Northern Ireland.
Speaker A:Ken's been in the trenches of MSP, M&A for a long time, so he's learned firsthand what works, what doesn't and has built out a system and actually a service and solution set to help folks who want to buy, sell and integrate IT services companies.
Speaker A:So I'm really excited to dig in help having as I am also a fellow acquirer and integrator, I'm excited to dive into the nitty gritty.
Speaker A:So Ken, welcome to the MSP Hunter Podcast.
Speaker B:Thank you very much for inviting me along.
Speaker A:So why don't you give us a really quick background on who you are, what you do and then we can dive back to your founding okay I've.
Speaker B:Been in the IT services career all my working life.
Speaker B:Started off as an engineer, moved into sales, and then moved into management in the Break Fix era in the 90s.
Speaker B:During that period I was working under a US company called Unicomp out of Atlanta and we made five acquisitions in the 90s in the break Fix marketplace and grew the company from 17 staff to 230 staff.
Speaker B: hat business was then sold in: Speaker B: But in: Speaker B:And of course during that intervening period the Internet had come along and really transformed the way we all work.
Speaker B: So I started off in: Speaker B:I decided that I wanted to stay in the industry a bit longer and utilize my knowledge of both mergers and acquisitions from the buying side and the selling side.
Speaker B:So I started to work with a number of organizations since that point in time, including with Kaseya on their M and a concierge program which was all about matchmaking companies together who are interested in either buying or selling, but have worked with a number of other MSPs directly in that regard and then launched a website which you refer to as MSP Manda, which stands for MSP M&A mergers and acquisitions.com and it's very much trying to help other MSP owners to navigate the processes of acquiring or selling their business.
Speaker A:Cool.
Speaker A:So you've been really full life cycle, done this a number of different times in the markets that look very different.
Speaker A:Right.
Speaker A:The break fix market, you did acquisitions and integrations within that market and then you also did it with kind of a standard MSP recurring revenue business model, which things have shifted and then now you're mostly.
Speaker B:Yeah, the markets are very different from a technology perspective, but the basics of having good staff and treating them well and providing a good service to your customer and obviously purchasing your or selling your services on a recurring basis was common to both as well.
Speaker B:So a lot of difference, but also a lot of similarity.
Speaker A:Makes sense.
Speaker A: And: Speaker A:What was that company called?
Speaker B:New cmi.
Speaker B:The previous company in the breakfast arena was known as Computer Maintenance Ireland, which the initial cmi.
Speaker B:And whenever I started again I started to play with the same initials, but stood for Customized Managed Infrastructure.
Speaker B:So it was just playing with the same initials, but New CMI was its legal name.
Speaker A:Got it.
Speaker A:So with New cmi, how did that begin?
Speaker A:So you had sold your last company and how did that form?
Speaker B:Yeah, interesting.
Speaker B:I had just left a company that I was working for and I was approaching my 50th birthday and I realized that I wanted to have one more crack at building up a decent sized business in my own right.
Speaker B:So I set about identifying a company that I could use as a platform to build on.
Speaker B: And if you recall,: Speaker B:And there were a number of companies that were struggling to manage non core subsidiaries.
Speaker B:And what I did was to identify an IT company, two IT companies in fact that were not core to that business, but that had been set up at some point in time over the previous five years and really were becoming more of a distraction for the companies than anything else.
Speaker B:So I purchased both companies within a three month period of each other to act as that platform.
Speaker B:And I say both companies were acquired from owners who wanted to focus all their resources on their core activity when the marketplace was as challenging as it was at that stage.
Speaker A:So these were two separate corporate carve outs?
Speaker B:Yep.
Speaker B:Essentially, to use your term.
Speaker A:How did you find, were they related opportunities or completely unrelated?
Speaker B:They weren't totally unrelated.
Speaker B:You know, as you can maybe tell from my accent or the listeners can, I'm from Northern Ireland, so it's a small, small country and therefore it's relatively easy to sort of know who's doing what in the marketplace at a territory of this size.
Speaker B:So yeah, it was through a process just of networking and listening to the marketplace.
Speaker B:I was quite lucky in many respects.
Speaker B:So it wasn't through a formal process of going out and doing the hard grind of trying to find companies for sale.
Speaker B:It came quite easily, which to me felt a bit like fate, but they fell so easily into my lap.
Speaker B:Of course there was a bit of work to be done to negotiate the costs and the price of the business, but we got there in both cases.
Speaker A:How did you fund those two acquisitions?
Speaker B:There was an element of using my own personal resources along with the ubiquitous friends and family technique of getting a bit of money in from those sources.
Speaker B:But the bulk of what we needed for the cash flowing of the business came from what is now called invoice discounting or was known as factoring, where basically you leverage the debtor book to with a third party for a small fee and they provide you with the cash that allows you to run the business.
Speaker B:So that was the primary basis on which we used it because again, at that point in time none of the banks were really interested in lending in general in the marketplace unless there was.
Speaker A:Some real tangible security you financed it via.
Speaker A:Sounds like factoring as well as personal capital and then friends and family.
Speaker A:Was the vast majority of that your own capital?
Speaker A:Like were you at a point in your career where like you had accumulated decent wealth and you can go and buy a multimillion dollar company or like what was the.
Speaker A:Just so we can.
Speaker A:You can frame it for people who know.
Speaker B:To be honest, I.
Speaker B:Part of the reason for wanting to start to that process of building up my own business at that stage was that for a variety of reasons, most of the previous years I'd been in an employment role and I, you know, whilst I had senior positions, I wasn't necessarily generating any real assets.
Speaker B:You know, I was generating a good income and I was spending that income as many people do, whenever it's just salaried row.
Speaker B:And I kind of realized that, you know, if I was going to have any sort of pension or any sort of material wealth at any stage down the road that I would have to do it by owning my own business as opposed to working for somebody.
Speaker B:So it primarily was leveraging other resources rather than my own.
Speaker A:Wow.
Speaker A:Can you talk about that inflection point?
Speaker A:I mean, you were probably like, it sounds like you were late 40s and you had been in an employment.
Speaker A:Employment sort of relationship for a long, long time, then you realized, man, I need to take a shift.
Speaker A:Was it.
Speaker A:Do you remember, like, was it an accumulation over a certain time period or was it like a.
Speaker A:There's a moment where you're like, I have to do this.
Speaker B: 'd sold the first business in: Speaker B:But it was a US owned company, so I didn't get significant monetary reward for that.
Speaker B:But I did have a senior role.
Speaker B:And a lot of the employees who had worked with me during that period kept asking me when I was going to set up a new version of that company moving forward.
Speaker B:And I wasn't sure that I would ever get to that point.
Speaker B:But as the years went on and I gained more experience and more knowledge and took more active interest in the marketplace and the changes that were coming in it, I got to a point where, yes, my 50th birthday was looming up when a lot of people are thinking about getting out.
Speaker B:I was saying, right, no, now is my point in time to get in and really make a go at this.
Speaker B:And I'd set myself a goal of 10 years to see how far I could take it and effectively get out by my 60th birthday.
Speaker B:Unfortunately, Covid came along and set back my plans by a couple of years.
Speaker B:But I did get out eventually at 63 years of age instead of the 60.
Speaker B:But yeah, it was a there, the.
Speaker B:The inflection point, as you say.
Speaker B: think it's when I realized in: Speaker A:It makes sense.
Speaker A:Makes sense.
Speaker A:Yeah.
Speaker A:That's the cool thing about.
Speaker A:At least this podcast is we're focused on talking about owners and what owners go through.
Speaker A:And they might just be like, oh, I had a great career, I was making really good money, but I wanted to do something more to set me up to the next level.
Speaker A:And so I think there's a lot of people going through that right now, right mid career, wondering, hey, what do I want to do next?
Speaker A:And so it's, it's a common, it's a common problem, a common situation.
Speaker A:I've, I've seen.
Speaker C:Hi, I'm Ben Tigular, the host of MSP Owner podcast and the CEO of Datatel, an IT managed service provider with 35 employees.
Speaker C:The mission of this podcast is simple, to have authentic conversations with IT owners about their journey, how it started, the challenges they faced and where they're going next.
Speaker C:Every episode, I personally walk away with a new actionable item to strengthen my own business.
Speaker C:But a quick word about my company, Datatel.
Speaker C:We are actively acquiring MSPs who align with our service and culture.
Speaker C:So if your company is generating between 1 and $10 million of revenue, I want to talk to you.
Speaker C:But wait, you're probably thinking, why me and why Datatel?
Speaker A:First is, I get you.
Speaker C:I understand the challenges MSP owners face.
Speaker C:Being one myself, feeling overworked, overwhelmed, constantly being on call, struggling to bring in new business.
Speaker C:I have the solutions and people in place to address these pain points.
Speaker C:Second is culture.
Speaker C:We run our business on eos entrepreneurial operating system, which has been transformative for our employees and clients alike.
Speaker C:I believe that building a great company comes down to finding and retaining great people who are in the right seats.
Speaker C:Everything else is noise.
Speaker C:If any of this resonates, it probably means we're a fit and we should be having a conversation.
Speaker C:Until then, let's get back to the show.
Speaker A:How many employees?
Speaker A:What was the revenue when you had first got into the business and acquired those two corporate carve outs?
Speaker B:Okay, the first company had about 15 staff, generating about one and a half million of revenues.
Speaker B:The second company, which I say followed three months later, I had seven employees doing about 750.
Speaker B:I'm talking pounds, so you gotta extrapolate that for dollars.
Speaker B:So yeah, so that gave me a nucleus of about 20 odd staff and about the guts of $3 million worth of income, of which two thirds approximately was of a recurring nature.
Speaker B:So yeah, they were relatively small businesses, were both here in Northern Ireland and I say then spent the next two years really getting them set up as a platform through the various technology components that were required to make it into a fully fledged msp, as opposed to just being an IT services business that did stuff remotely.
Speaker B: eems strange now, but back in: Speaker B:I don't even think that the name was necessarily known or businesses were known as that.
Speaker B:But what we did was to say, look, if we're going to make success of this in the future, we have to be fully committed to this model.
Speaker B:We have to change the way that our staff work, how our customers think about things.
Speaker B: f the recession and then come: Speaker A:So did you find organic growth challenging, like just, just doing the boots, boots on the ground, sales approach or did you just see M and A as a path because you had, you had done it before?
Speaker B:I think organic growth is great when it works, but it's very challenging.
Speaker B:One of the beauties of the MSP industry and of the services that we provide is that they're very sticky.
Speaker B:Customers tend not to move if you're doing providing a good service unless there's been an issue.
Speaker B:So, you know, that's both the plus and the downside of the MSP games.
Speaker B:So it's very hard to grow organically, I find.
Speaker B:And also because of the fairly tight timeline I'd set myself, I. E. A ten year period, I just said there's no way I'm going to grow this business in that 10 year time frame to give me the material output that I was looking for.
Speaker B:Because as you indicated, I stated earlier, I did have prior experience in the whole area of growth through acquisition.
Speaker B:I very much had in mind from day one that that's what we were going to do, that's what the plan would be.
Speaker B:But I knew that in the first couple of years I needed to get the foundations in place first of all, because there's no point trying to grow through acquisition if you've got a weak foundation to start with.
Speaker A:What were those foundational things that you had to make sure were in order before you acquired more?
Speaker B:Well, I think that the very first thing was to identify a good RMM system, remote monitoring management system that would allow our engineers to perform the services remotely that they needed to do that proactively ensured that the security and the reliability of the systems was paramount.
Speaker B:And we did a fairly extensive trial of the market and as I ended up with the Kaseya product at that stage, which was still in its relative infancy also, but definitely at that point in time was the leader in the marketplace and we went with it and that was one of the first things.
Speaker B:But I think A lot of the other changes were more to do with culture rather than the technology.
Speaker B:It was getting people into the mindset of how they valued services, how they paid for services, how we delivered the services, and, you know, making sure that we were monitoring not just our customers technology, but we're monitoring our own resources to ensure we were getting maximum productivity.
Speaker B:Because the heyday of making a lot of money out of the IT industry had, has since long passed.
Speaker B:You know, it's a very tight business now and you have to be running things very efficiently to make the money that's required to provide the proper return for shareholders or investors.
Speaker A:Did your platform have a niche or did you ultimately come into one?
Speaker A:Or was it, was it more locationally driven?
Speaker B:No, it would have been a location based, based niche if it had everything.
Speaker B:I call, but I would say like 90% of MSPs that certainly operate within the SMB arena, or SME as it's sometimes known.
Speaker B:It was a generalist.
Speaker B:You know, we weren't in any specific vertical market.
Speaker B:We were purely a private sector play and we were really dealing with companies that had between 10 and 100 users is where we sort of positioned ourselves initially.
Speaker B:Subsequently, as we got bigger, we moved that to 25 to 250 and then subsequently to 50 to 500 as we got bigger and we had more scale.
Speaker B:But initially, at that point in time, it was any organization that was utilizing technology to drive its business and who believed in the benefit of the technology and needed that technology to be both secure and reliable.
Speaker A:Can you walk me through how you found the acquisition?
Speaker A:So you had the two that were the initial platform and then you acquired what, four more with that platform?
Speaker A:It sounds like, yeah, four total, yes.
Speaker B:They all came from different sort of places, but not very normal.
Speaker B:When I decided that the business was ready to move forward with acquisition strategy, my initial thoughts were to look at the marketplace more locally within Northern Ireland, where we had grown before, but realized that the market was too small and that the valuations were too high.
Speaker B:So I reached out to some people who I knew in the UK who were in the IT industry and who I'd worked with before to get some advice and guidance from them.
Speaker B:And what they indicated to me was that there's quite a cost differential in the UK between people who were operating in the south of the UK around London, and obviously more in the north of the uk, including Northern Ireland, where the cost of living difference was such that the salaries were considerably different between the two markets.
Speaker B:So we put together thinking that said, look if we're going to actually grow through acquisition, what we should do is to target those high cost markets like the Greater London marketplace, where salaries are high and the availability of staff is limited, and then back office as much as we could to Belfast and to Northern Ireland where the cost base was much lower.
Speaker B:So once we kind of got our heads around, that's where we wanted to do.
Speaker B:And of course the model of MSP totally suits that capability because you can be anywhere and deliver services to anywhere else.
Speaker B:You don't have to have the same locational proximity that you would have done in the break fix world.
Speaker B:So once we sort of realized that that was where we wanted to go forward, then three of the guys who I'd been working with and through the industry who became friends, decided that they would invest in my business.
Speaker B:So they put some equity into the business that we could use to make the next acquisition.
Speaker B:And as a result, one of them was doing some consulting for a company in that geography and started to have a conversation with them about would they be interested in working with us in some shape or form.
Speaker B:Initially it was kind of a, you know, a partnership model whereby we would subcontract services for them.
Speaker B:But it became obvious quite quickly that there's two shareholders in the business and they had different aspirations of where they wanted to go.
Speaker B:So we changed the conversation from a partnership model into why don't we just acquire your business?
Speaker B:So that was how the first one came about.
Speaker B:The second one came about when, shortly, within about a year afterwards, I was looking to expand our presence in the UK and I was talking to a recruitment agent about how I could potentially get staff that fitted what I needed in that part of the world.
Speaker B:And he said, well, one of the things that you could do based on the number of staff you're looking for is to buy a company, not just recruit staff.
Speaker B:And I said, well, I certainly would consider doing that if I could find the right company.
Speaker B:And lo and behold, he had actually said, well, I've been talking to a company that I think are ready for sale because they've got two owners who again, have got different aspirations and views of how the business is going forward.
Speaker A:Seems like a common story.
Speaker B:And that was a CEO.
Speaker B:And then he provided an introduction.
Speaker B:Lo and behold, we acquired that business.
Speaker B:Then the next one that came about was actually as a result of an introduction provided by Fred Verkula of Kaseya.
Speaker B:I was at one of their events in Amsterdam, in Holland, and I was saying, look, I'm looking to grow and I'm looking for an MSP to acquire.
Speaker B:You know, if you think of anybody or see anybody you think fits that particular mold that I'm looking for.
Speaker B:And he happened to be having a conversation with another MSP on his one to ones and that he had said that we're not really sure where we're going.
Speaker B:We think we've had a brick wall.
Speaker B:Well, I think we might have to consider selling.
Speaker B:So he basically introduced the two of us together and that pretty much six months later resulted in that deal being done.
Speaker B:And then the last one of the four came about during the COVID time and was probably the most unusual in that near enough, the whole deal was done virtually.
Speaker B:I only met the seller once physically, and that company had been close to selling when Covid hit the pandemic.
Speaker B:And the buyer pulled out at that point in time.
Speaker B:But the seller, when he heard that we were interested through a third party in acquiring, made contact with us.
Speaker B:And I say we were able to do a deal with them.
Speaker B:So they all came from different sources.
Speaker B:But, you know, I said I'm a great believer in a lot of these deals.
Speaker B:The best deals are the deals that are done off market and they come through personal referral rather than through necessarily the brokerage business or any sort of other formal mechanism.
Speaker B:It tends to be easier to sort of hook up with people when you don't have that pressure on.
Speaker A:Yeah, agreed.
Speaker A:Agreed.
Speaker A:One interesting thing about what I've heard about your story, at least, is through the time that you own the company, you've raised equity.
Speaker A:Can you talk about what that, what that is?
Speaker A:I think that's unusual too.
Speaker A:Like you raised, said you raised equity to do things.
Speaker A:When did you do that and how did you, how did you think about that?
Speaker A:Because that feels unusual and unique.
Speaker B:I'm not sure that it's unique, but I think you're right in thing.
Speaker B:It's.
Speaker B:It's probably unusual.
Speaker B:I think many business owners struggle with debt and they struggle with loss of.
Speaker B:Of control or perceived loss of control in terms of reduced shareholding.
Speaker B:I've always taken the view that I don't care what size the slice of the cake I have is, as long as it's big enough so the bigger I can make the cake, then my slice will grow with it.
Speaker B:So when I started with a business partner, I had essentially 65% of the shares.
Speaker B:And over the years between then and the last deal, my percentage shareholding reduced to 25%.
Speaker B: who came into the equation in: Speaker B:Because again, borrowing money was still challenging around that period of time here in the UK at least.
Speaker B:But also I felt that as well as having the financial input, I was getting access to their contacts, to their knowledge, to their experience, and I was adding value to the equation.
Speaker B:I also decided to take up to 10, well, it was about 10% of my equity and distribute it amongst my senior managers in the business to give them skin in the game and make them feel committed to what we were doing.
Speaker B:And know that paid off massively for me because pretty much everybody that got that stayed through the journey and stayed to the end and were well rewarded when it got to that point in time.
Speaker B:So that was what I was doing.
Speaker B:And then when we were making the third MSP acquisition in that period, the amounts of money that we were looking at, because the business we were acquiring was bigger than us, needed more firepower than we had ourselves.
Speaker B:So that's when I have to say, reluctantly initially, but I ended up accepting it.
Speaker B:I got involved with a private equity business who came in and basically took a stake in the company and provided us then with the war chest that we needed to make the last two acquisitions.
Speaker A:Did you still retain control when you sold that portion of the private equity firm and was still running the company?
Speaker B:Yeah, the private equity, you know, people get, and I would have been one as well, that get, hear different stories about private equity.
Speaker B:But you know, depending on the private equity company and the size of the business, they would either take a majority stake or a minority stake.
Speaker B:And in our case it was a minority stake.
Speaker B:They were one of the smaller private equity players.
Speaker B:They very much viewed that it was our business, that we were the experts, they wanted to support us to grow the business.
Speaker B:They didn't have the knowledge in it to really do much more except to add the firepower from the funding perspective.
Speaker B:So no, even though my shareholding reduced down, I always still felt that I had control because the people that were working with me and around me thankfully valued my role in the business.
Speaker B:And we never had to resort to contracts or disputes in any shape or form.
Speaker B:It was all a collective decision making process.
Speaker B:But very much it was my baby.
Speaker B:Whether I own 25% of it or 100% of it, it didn't matter.
Speaker B:And the other people all could see that that was where my passion lay.
Speaker B:And my job was to, was to grow that business for everyone's benefit.
Speaker B:You know, My investors, my private equity partners and my management and staff also.
Speaker A:Interesting.
Speaker A:So you don't have any regrets for taking that private equity partnership for those last two, two acquisitions?
Speaker B:No, I don't.
Speaker B:Because without it I doubt that we would have.
Speaker A:Because the company was just so much bigger than yours, right?
Speaker A:It was larger, the one that you're acquiring.
Speaker A:And that was the challenge.
Speaker B:Yeah, I don't think we did consider it obviously at the time, but the numbers just weren't right and the security requirements that the banks and so on were looking was just punitive.
Speaker B:So I, you know, I wanted somebody who would back our strategy for growth, not just approach it from a viewpoint of putting some money in and then wanting to ensure that they got their money back plus a return.
Speaker B:So the combination of equity and loan was really what did the trick.
Speaker A:Do you have a sense for what the return was for those private equity investors?
Speaker A:Did they make two times their money, three times their money, four times their money?
Speaker B:The money came in two parts.
Speaker B:It came in both the equity investment and the loan.
Speaker B:And of course with the loan there was a coupon attached that.
Speaker B:So they made reasonably good interest on that over that period of time.
Speaker B:In terms of the actual equity stake itself, I think that it was close to a five times return over a four year period that they got.
Speaker A:That's exceptional.
Speaker A:They must have been very happy.
Speaker B:It was definitely.
Speaker B:They were.
Speaker B:They were very happy.
Speaker B:You know, they were.
Speaker B:They were very happy indeed.
Speaker A:That's awesome.
Speaker A:And you were operating as CEO during this, during this whole period?
Speaker C:Right.
Speaker A:Did you have a COO or a partner within it that was operating with you or was it mostly you with employees?
Speaker B:When I started the company up, I had a colleague who, from my previous involvement in the old cmi, he was an operations guy and he and I basically started the business together very much.
Speaker B:I was the majority shareholder and he was a minority.
Speaker B:I was focused more on the sales and business side of the house and he was focused on the service and operations side.
Speaker B:So he got involved.
Speaker B:But as we started to acquire companies, we started to pick up talent from different places from those acquisitions.
Speaker B:My initial business partner subsequently retired and left.
Speaker B:So when I was at the point of exiting, I didn't have a COO as such.
Speaker B:I had two people in the technical space.
Speaker B:One that was focused mostly on what we call technical solutions, which was the delivery of projects of stuff of that nature, and one that was focused more on the delivery of the managed services itself.
Speaker B:I had a sales director and I had a business operations director and the business operations Director was primarily interested in the back end in terms of the management of all of the information that was coming out of the various systems we were then using, and in particular ensuring that that information fed into our billing system.
Speaker B:And then of course, in the last year, 18 months, we brought in, the only person who we actually acquired was from the.
Speaker B:That didn't come from an acquisition, was a finance director to help us to get the business ready for sale and to get us through that whole DD process when it came to it.
Speaker A:As you think back to the integrations of multiple companies that you did, what's the hardest part or the most challenging part throughout those processes, I smile because.
Speaker B:It'S people, it's always people and it's culture.
Speaker B:And whether the people be employees or be customers, you know, we have an inherent resistance to change.
Speaker B:And you know, when businesses are acquired or suppliers change, there is just a lot of change that goes on and people either fall into the camp of accepting it and going with it, or they have a problem with it and they push back on it.
Speaker B:So I think I've always said that there's four main strands to companies coming together.
Speaker B:Is there a strategic fit?
Speaker B:Is the two companies getting together one plus one in terms of a strategic positioning within a vertical market or a geographic area or some sort of skill set?
Speaker B:There is the technology fit in terms of the products and systems that are in use and will they mesh together?
Speaker B:There's of course the financial fit.
Speaker B:Well, the numbers work.
Speaker B:But the last, but the most important is the cultural fit.
Speaker B:And that's the one that's most difficult to get right.
Speaker B:Takes the most work post acquisition because you're trying to bring groups of people together into a common way of working, when perhaps, you know, a third or even half of that staff may have been so used to working in a different way for a different company and a different CEO previously.
Speaker B:So you got to take that bit of it quite slowly.
Speaker B:You know, you can't be draconian about it.
Speaker B:You have to go in, you got to listen, you got to learn, you got to figure out where the battles are that have to be had about where you need to win the hearts and minds over a period of time.
Speaker B:And I pleased to say, and looking around to touch wood here somewhere, you know, we were, we were very fortunate in that we got through all of those cultural integrations.
Speaker B:But I always allowed a year after acquiring a business before we would look to grow again through acquisition because I needed to allow time for that culture to settle down and to integrate together and Once you've got all your staff working together, singing off a common song sheet, it then becomes a lot easier to run.
Speaker B:And certainly once the customers start to accept and understand it as well, and to a large extent, they take their lead from your staff, if they see happy staff, then they become happier as well.
Speaker B:So it knocks on throughout the whole process.
Speaker B:So the old FedEx set of people service profits, I think, is very true.
Speaker A:How did you get people to sing from the same sheet?
Speaker B:I think a lot of it was to do with providing direction about what it is that we're trying to achieve.
Speaker B:A lot of it was also about listening to the staff and their feedback and providing mechanisms and forums that encouraged that.
Speaker B:Spending a lot more time with the employees of the company being acquired than you would do with your own staff.
Speaker B:Just physically being with them, walking the walk, talking the talk, organizing social situations to bring the parties together over a period of time.
Speaker B:You don't expect it all to be roses from day one, but if you stick with it over a period of time, eventually those little cliques and groups break down and people start to respect and trust other colleagues who are providing additional services within the business.
Speaker A:How do you have such patience?
Speaker A:When you.
Speaker A:When it's sitting there, you know it's a problem, you just say, okay, that's a problem.
Speaker A:Let it marinate.
Speaker B:Or I don't think you.
Speaker B:You just take the view of let it marinate and.
Speaker B:And you know it'll eventually be okay.
Speaker B:But.
Speaker B:But same token, I think it's also very difficult to try and rush it and try and force it, because staff are human beings.
Speaker B:They're intelligent people by the nature that they're in our industry, and they can smell if something's being forced on them.
Speaker B:And of course, anybody that's in the IT industry can move very easily from one job to another.
Speaker B:It's not a difficult thing to do, by and large.
Speaker B:So when you're acquiring a company, you're not just acquiring the customers and the contracts, you're acquiring the staff.
Speaker B:And they are every bit, if not more so important than many of the customers.
Speaker B:So what you do want to do is to alienate them by being too aggressive.
Speaker B:So you do have to have patience.
Speaker B:That's not one thing that my friends would normally say, I have.
Speaker B:But I did find that there were many occasions when I had to bite my tongue and I had to take a wall when nobody was looking so that I could just keep going with it.
Speaker B:But it did work out.
Speaker B:But it is challenging.
Speaker B:There's no doubt it is.
Speaker B:Challenging?
Speaker A:Yeah, it's tough.
Speaker A:It's tough.
Speaker A:And then sometimes it's knowing when to take a hard stance and when to say, let's let things work out.
Speaker B:Right.
Speaker A:And knowing when to do that is a very, very difficult thing to do as an owner.
Speaker B:Absolutely.
Speaker B:I always think as a CEO or any manager, you have to have the balance of firm but fair and, you know, there's the carrot and the stick approach and you can go with things for so long until it gets to a point whereby there's a danger.
Speaker B:If you don't address it properly at that stage, it becomes a bigger problem down the road.
Speaker B:And, you know, it's the old saying about one rotten apple in the barrel can destroy a good, a good team.
Speaker B:So, yes, we, you know, I, we did on occasions have to push back when we felt that we were being maybe taken advantage of.
Speaker B:We showed our teeth for the want of a better term.
Speaker B: , I'm a great believer in the: Speaker B:And you know, I, I think that 80% of staff through an acquisition will come on side with it, but 20% probably will not.
Speaker B:And you can do your best with them, but you get to a point in time where you have to realize that it's just not going to work for them or you.
Speaker B:And it's better for everybody if you can facilitate an easy movement for them to somewhere else in the industry.
Speaker B:So, yeah, I think it's utopian to expect that everybody, both staff and customers, will absolutely love what you do and totally swear their allegiance to you, having been with a previous company for X number of years.
Speaker B:But I think you can expect to get at least 80% on site if you do the job right.
Speaker A:Interesting.
Speaker A:So you think from an employee perspective and a customer perspective, when you're doing an acquisition, it's like you hope 80% of the employees remain 20%.
Speaker A:Maybe it's not the right culture, fit, alignment, whatever.
Speaker A:And then same goes with customers.
Speaker A:Or do you view customers differently?
Speaker B:No, the same.
Speaker B:But I think the key thing is that it's a try and retain the good stuff and the good customers.
Speaker B:And so I would always have looked at categorizing staff and customers into sort of like A, B, C or 1, 2, 3 type levels whereby there are those staff and customers who absolutely are must keep because they bring so much value or so much revenue to the equation.
Speaker B:There are a number of customers and staff that, you know, provide a very meaningful role and they do a decent job or they provide decent income, but they're not going to change the world and then there's going to be the 20% at the other end that employee wise, are just not going to buy into your philosophy.
Speaker B:And from a customer viewpoint are perhaps the 20% that are generating the least profit or generating the most noise or generally speaking, are the most difficult to deal with.
Speaker B:And if you can end up, you know, sharing up to 20% of customers and staff, but they're the right 20%, then that's, that's the, that's, that's the beauty of it.
Speaker B:If you lose the good staff and you lose the good customers, well then it's a dead, it's a dead duck.
Speaker A:You know, you're, I love that methodology.
Speaker A:I love, I love the way that you've outlined that because that's so true, right?
Speaker A:Like you have customers who are great and you want to keep them.
Speaker A:You want to make sure that you keep them.
Speaker A:And there's also going to be customers who might not be the right fit for your model.
Speaker A:Where your business is going.
Speaker A:They might be taking up a lot of time and energy for which you could have been spent doing other things.
Speaker A:So same, same, same respect.
Speaker A:That's, that's, that's really insightful.
Speaker A:How did you know that you wanted to, that you guys wanted to exit business?
Speaker A:You were past your 10 year time frame, right?
Speaker A:You're at year 12, 13.
Speaker A:So I'm sure it was kind of a natural.
Speaker A:Okay, now it's time to sell.
Speaker A:But how did you, how did you know it was the right time?
Speaker B:I begin smiling because we were unfortunate enough to have a cyber attack.
Speaker B: t acquisition that we made in: Speaker B:And in September, the data center that they used for their business, which thankfully in Metros fix, we had not integrated into our network.
Speaker B:So it was still standalone.
Speaker B:But it was the subject of a ransomware attack which caused a lot of distress due to reasons which I would take far too long to explain to get into now.
Speaker B:The data was lost for these customers.
Speaker B:So we had 42 customers whose it effectively disappeared at one go.
Speaker B:Some of these were fairly large companies, including wealth managers, legal attorneys, solicitors, accountants, and all their data had been wiped or had been taken as a result of this ransomware.
Speaker B:We ended up trying to find the data and get the data back.
Speaker B:We struggled with that again for reasons I'll not get into now.
Speaker B:And we ultimately had to pay the ransom and we had to hope that we got the data and that the data would Be good.
Speaker B:And we did get the data, but then we found that all of the infrastructure had been totally destroyed.
Speaker B:And what we had to do was to rebuild 42 sets of infrastructure which can take, you know, when you're setting up a business, a customer, it can take two or three weeks to set up one.
Speaker B:We had to set up 42.
Speaker B:It took two weeks to get through all of the 42 customers, during which time many of those customers just did know what they were going to do.
Speaker B:And they were on the phone to us and to me almost daily talking about their business and the problems that they were having.
Speaker B:We, we were very transparent about what had occurred and we sought their goodwill, which we got by and large we got through the process and we came out the other side of it with 85% of the revenue, recurring revenue retained on new three year contracts with those customers to move them onto a new platform, which was the Microsoft Azure platform.
Speaker B:But that two weeks probably finished me off in terms of my bandwidth for dealing with running a company of that nature and the realization that that could have gone so much worse than it ended up doing.
Speaker B:It cost us half a million dollars.
Speaker A:Pounds probably that was the ransomware amount was half a million.
Speaker B:No, it was probably about half that.
Speaker B:But by the time you factored in all the loss, legal costs, overtime costs, new equipment costs, compensation costs, you know, it added up to about that sort of amount, which in itself, you know, is a significant amount of money.
Speaker B:But it's the mental toll that it placed on myself and the other people that were actively involved in it.
Speaker B:And I kind of realized, I think if I can get a good deal here in terms of moving forward, that I need to seriously consider it.
Speaker B:And so as I say, the retention of those customers on new three year contracts just said all to any potential buyer.
Speaker B:They just said, look, this company's even survived, you know, that sort of situation and still retained its customers.
Speaker B:So they are sticky.
Speaker B:You know, they, they believe in the company and they have a good relationship.
Speaker A:Both frightening and, and, and, and like gives me a sense of safety as well.
Speaker B:I have.
Speaker B:As well as talking about M and A, I've also spoken at a few events with MSPs and I've advised them not to be cobbler's children, not to, you know, provide security services for all of their customers without understanding what you have to do in your own business.
Speaker B:Because the MSPS are now number one target for a lot of these guys because if they can get in through an MSP's infrastructure, they could access so many companies as a result of it.
Speaker B:And unfortunately just the company who we acquired, whose data set it was, had slipped up in one respect, in terms of their security.
Speaker B:It's a very minor thing, but it was just enough for them to get in.
Speaker A:So, so how, how did you keep 85%?
Speaker A:Did you, did you position it as, as that you, you acquired this company and, and then it was their decisions and you were here to fix it?
Speaker A:Was that part of the narrative that, that allowed you to do that?
Speaker A:Because I would think that if you had long term contracts with them and it was just an existing client and that happened, that would be a death spell.
Speaker A:Right.
Speaker B:The company that we acquired had developed a model in terms of how it provided the services, but it, it was using an old platform, an old private data center platform to run that model off.
Speaker B:And we identified through the acquisition that the model was very good, the customers very good, the revenues were all very good, but the underlying platform needed to change.
Speaker B:So we knew that we were buying a business where we were going to be investing in changing that platform.
Speaker B:And very much we were off the view that we were going to be moving those customers to Azure, which was our preferred platform to work off.
Speaker B:And they in fact had started that process of starting to move some of their customers to Azure when this incident occurred.
Speaker B:Unfortunately, the timing of it was such that the hackers got in and got into the system, we think not long after the announcement of the acquisition hit the press.
Speaker B:We think that they got in through one of the smallest users and planted a bit of, let's call it malware.
Speaker B:You know, let's talk about zero day stuff.
Speaker B:It's very topical, atone, but a bit of malware on a system which lay dormant for a period of time.
Speaker B:And then it struck just coming up to our financial year end.
Speaker B:So there was a lot of thinking went into it, but you know, these people were running a business.
Speaker B:So when they did give us the key to the data we could unlock and get a hold back, they offered us a customer services hotline for seven days if we had any issues.
Speaker C:Really?
Speaker A:Did you call them?
Speaker A:Just to see what the customer experience was like.
Speaker B:We just couldn't believe it.
Speaker A:Wow, that's crazy.
Speaker B:But yes, that was the inflection point, to use your term.
Speaker B:That was the point at which I said, now I'm going to get what I can.
Speaker B:And, and thankfully, you know, as I say that we ended up getting a very good price for the business.
Speaker B:We got a 10x multiple on our EBITDA, which was, which was excellent.
Speaker B:Yeah, and it's fantastic.
Speaker B:You know, the whole journey was worth it.
Speaker A:What was your EBITDA at Exit?
Speaker B:We were over, well, we were about two and a half million dollars.
Speaker A:That's incredible.
Speaker C:Wow.
Speaker A:And so now you transitioned into know you're not, you don't have a bunch of employees, you don't have a big business.
Speaker A:Must be nice.
Speaker A:And now you're, now you're working on your new venture.
Speaker A:Can you tell us a little bit about it?
Speaker B:Yeah, yeah.
Speaker B:I'm essentially working in a consulting capacity trying to give feedback and help to MSP owners who are wanting to grow their msp, you know, are faced with challenges in, you know, just in terms of how to run an MSP and perhaps want a bit of additional experience.
Speaker B:So I'm doing a bit of that with a number of different companies.
Speaker B:But the area where I think I enjoyed most and there I like spending most time on is the whole M and A piece.
Speaker B:That's the bit that, you know, I find very interesting.
Speaker B:And certainly having spoken through the Kaseya M and A concierge program in the last year to well over 100 MSPs, what I found is that there is a great degree of naivety out there about the whole M and A process.
Speaker B:Most MSP owners don't really understand how you go about buying a company or indeed selling their company.
Speaker B:Many of them come from a, you know, a technical background where they started up an IT business and they've grown a different over a period of time organically or through their technical skills.
Speaker B:And it's a big, it's a big change.
Speaker B:Now I'm not saying it's easy to do, but it's not a black art.
Speaker B:You know, there is common sense, things that you can do to put in place that are the right structure to grow your business.
Speaker B:But it all depends on your personality.
Speaker B:You know, if you're a somebody who's just in business for lifestyle purposes and you're just wanting to get a decent salary each year out of the company, that's totally fine.
Speaker B:But if you're interested in, you know, really growing the value of the business and particularly growing it quickly, there's no real other way to do it apart from, you know, acquiring through acquisition.
Speaker B:And if you learn the basics and you get the first one or two over the line, it becomes easier.
Speaker B:Doesn't become easy, but it becomes easier going forward.
Speaker B:As I say, you know, I went from zero to 20 plus million dollars, you know, over four acquisitions, five acquisitions in a 12 year period.
Speaker B:So, you know, it can be Done.
Speaker B:And you know, I try to help MSP owners understand those principles and also give advice on and learn from what I did that didn't work.
Speaker B:Sometimes that's as valuable to another MSP owner as just being able to say what I did that didn't work.
Speaker B:You know, sometimes it's what you got wrong is where you can get a lot of the benefit from talking to somebody that's been there before.
Speaker B:It's the old saying about having the scars on your back.
Speaker A:At my business, Datatel, I acquired that business about 20 months ago.
Speaker A:So just over a year and a half is doing 6 million of revenue.
Speaker A:And four months ago I acquired another MSP that was, that's doing roughly 2 million of revenue.
Speaker A:So been at it for that long and now we're at 8 million of revenue.
Speaker A:So just like the scale and ability to progress the business and add capabilities is just so much faster when you can acquire versus just doing it organically.
Speaker B:Yeah.
Speaker B:And of course, if you get into this whole EBIT arbitrage game whereby the bigger your ebitda, then the bigger the multiple is.
Speaker B:Therefore your value increases exponentially as you increase the size of your business.
Speaker B:So, you know, you can get the payback for your acquisition almost purely through that growth in the value of the company, let alone just the profitability that it adds to the table.
Speaker A:100%.
Speaker A:I love hearing your path because it's been, it's, it's one where I think a lot of other owners get stuck in this two to $3 million range and they can't get past it because they're focused on growing organically and all their cash goes in their business.
Speaker A:And you know, you can kind of jump start that by acquiring sometimes.
Speaker B:Yeah, I would say a lot of those people have that issue.
Speaker B:And sometimes mentally they just can't accept that they have to perhaps go into debt to borrow money to make an acquisition or they have to give up some of their equity.
Speaker B:And my view is you got to look at the bigger prize and not get too hung up on those little issues along the way.
Speaker A:100%.
Speaker A:So.
Speaker A:So MSP Manda or MSPM and a.com that's a product or a service or walk me through what exactly that is.
Speaker B:It's a video program that I put together with a colleague who's an MSP marketing guy and he had heard me speak at a number of events and felt that if I could dump all my knowledge out about this area and all the war stories and all the issues that I've had along the years into something that could be packaged and people could avail off through a website mechanism that that would be a good thing because I'm obviously, you know, only able to do so much for so many people.
Speaker B:I've only got a certain amount of bandwidth available to me.
Speaker B:So this is a way to try and help many more MSP owners to understand about the whole M and a process from both sides of the fence.
Speaker B:So it's about eight hours worth of my history and my story.
Speaker B:So you've got nar of it today.
Speaker B:This is eight hours worth and it goes into a lot more depth about all the different elements about how to prepare your business for purchase, order to sell, how to raise the funds, how to select your partners that you need in the process and all the pluses and minuses that go with it, you get a full understanding of it all.
Speaker B:So it's about eight hours worth.
Speaker B:As I'd say it's on there at a price.
Speaker B:But you can go on and do a trial version of it and get an hour's worth of the content free and decide after that whether or not you want to purchase the rest of it.
Speaker B:But it's less than $1,000.
Speaker A:What's the monetization strategy?
Speaker A:I mean, a thousand bucks seems like trump, Trump change, right?
Speaker A:Like, so what's the, what's the long term plan for this for you guys?
Speaker A:Like, how will you monetize this?
Speaker B:From my viewpoint, thankfully I'm at a point in my life now, in my career and having sold the business where I'm not necessarily that worried about the money anymore.
Speaker B:I'm of course, you know, it's nice to have some income flow coming in, but my, my primary focus is to try and get that message spread out there to as many people as possible to try and help the industry in general.
Speaker B:So between Mark and I, if we get a thousand bucks for one, you know, we're more than happy with that.
Speaker B:But of course, if somebody goes on that and listens to it and likes what they hear and they want to reach out to me for more one to one type stuff, then of course I'm more than happy to do that separately.
Speaker A:Sounds good.
Speaker A:Well, I'd be happy to pay a referral fee should you find folks who want to get acquired, you know, to the tune like 4 or 5%.
Speaker A:So maybe that's an option.
Speaker B:Well, we can keep all those options open, I think, you know.
Speaker B:Okay, cool.
Speaker A:Sounds good.
Speaker A:Well, I think we're at time now, so man, Ken, thanks for diving into your background and talking about your, your history at operating in MSP and then now in your, your next phase, in your next chapter.
Speaker A:It sounds like you're adding, you're going to add a ton of value to MSP owners abroad.
Speaker A:So I'm excited to hear what you do.
Speaker B:Great.
Speaker B:Thank you very much for the time.
Speaker A:Thanks.
