How To Buy An MSP: All Covered Talks M&A Strategies

With more than 25 acquisitions in its history, including more than 10 in the last two years, All Covered has learned a thing or two about buying and selling companies.

Bruce Teichman, director of corporate development at All Covered, relayed some of the MSP's strategies during a Q&A session with TruMethods CEO Gary Pica at TruMethods' Schnizzfest conference in Philadelphia.

Above all else, MSPs interested in being acquired need to remain relevant with their offerings and show the company is growing, Teichman said.

"The targets have changed from 10 years ago, from four years ago vs. what they do now. The drivers are geography, size, capabilities. It's all those things. That's what makes a good target today," Teichman said.

All Covered now has 700 employees since its acquisitions — and being acquired by Konica-Minolta itself in January2011.

"We have Konica-Minolta behind us. It allows us to [buy] larger firms," Teichman said.

All Covered has goals of becoming a $1 billion MSP and become a global player after Konica-Minolta has made buys in France and Sweden, but said there's still plenty of room for competition of all sizes, Teichman said.

"We have a large fishing boat, but we can't put every fisherman out of business," he said. "We are trying to build a large presence, become a recognized name player in this space. But I don't think it takes opportunity from others in the space."

Now, All Covered looks for companies with at least $5 million in annual revenue, in part because of its ever-growing bulk. "You get big, you need more to move the needle," Teichman said.

The MSP also looks for "a certain business maturity" when looking at acquisition targets, Teichman said. "As you know, you get larger, more employees, more experience, there's a maturity that gets to it. You figure out how to hire the right folks, retain the right people, how to service and retain customers. All those things: systems processes. With time, you grew. That means you're doing things right."

One area that's not a top priority is straight sales. "Not all revenue is created equally," Teichman said.

Not surprising, service revenue counts more than product revenue, and a services culture adds more value to a company too, he said.

"One usually goes with the other, but not always. What's recurring, what's professional services, what's break/fix? How you spread out in your particular mix matters. Even within recurring revenue, you look at the size of customers and seat price, effectively hourly rate," Teichman said.

NEXT: Predicting Future Growth

Growth trajectory can also add significant value to a company, Teichman said. For example, a $7 million company that's grown 30 percent for the last three years is a more interesting target than a $10 million company that hasn't grown for three years, he said.

"It's all to predict the future. When you buy a firm, you're buying the future and confidence in that prediction. The longer they've been growing, the more confidence that will continue," Teichman said. "The fact they hit some phenomenal sales recently, but is it a bump or is it reality? Do they have a sales engine?"

Some MSP owners might feel they can't sell a company coming off its best year, but the truth is that is when the company is most valuable. But finding the perfect time to sell is an elusive, moving target.

In general, business owners should always run their company as if you're going to sell it.

"Absolutely, even if there's a good chance you're not selling. Was it a wasted effort? Absolutely not. You're still helping you help your employees," Teichman said.

Finally, having vertical market expertise is also highly-sought after, Teichman said. All Covered recently bought a company with educational expertise, skills that it intends to roll out across its entire customer base.

"There's additional strategic value. It's an opportunity to leverage it out to the rest of your [operations]," Teichman said.