Evergreen hosted their first ever public-facing and new annual event, Elevate, in Austin, Texas, this week. The conference focused heavily on strategies and techniques to maximize MSP value in preparation for an eventual sale and featured advice from MSPs who have sold their businesses as well as legal counsel.
Part of what inspired Evergreen to host the event was the observation of a gap in the industry. “We’ve seen the power of the events in this space, bringing communities and people together,” Ramsey Sahyoun says. Sahyoun is co-founder of Evergreen, a holding company that acquires and operates a group of leading technology services companies. “We looked at the event landscape and noticed that almost all of them are put on by vendors that are trying to sell a product to MSPs. And everything else is downstream of that. I think a lot of things can’t be said in those environments. So, what we really want to create here is a community of business owners that are focused on creating MSP value in their businesses.”
Still a Seller’s Market
The M&A environment for MSPs has been a seller’s market for a long time. Sahyoun anticipates that staying consistent for the time being. “Valuations have gone up,” he says. “We were buying companies, good, solid MSPs, for five times EBITDA between 2017 and 2019. Today, we’re generally buying for several points more than that. I would say it’s been a seller’s market from 2022 onwards.”
In the general market, Sahyoun anticipates transaction frequency to remain about the same. For Evergreen, however, they’re planning to increase their number of transactions from last year. “We set a target around how much EBITDA we want to acquire through all our acquisitions. Last year, we did 25 MSP acquisitions; this year we think we can do upwards of 30.”
Post-Election Optimism
While some MSPs were considering selling before the election, the current market shows a lot of economy-related optimism under the new administration that may have changed a few minds. “I think in our world, it actually may have encouraged business owners to hold onto their business, instead of selling it,” Sahyoun says. “I had conversations prior to the election, where if it went the other way, people would’ve feared tax increases. When tax increases are on the horizon, people tend to monetize their businesses. In the U.K., for example, they increased the capital gains tax in October of last year, and we had a flurry of people that wanted to sell their companies before that deadline. I think in a way, in the MSP market, [the election outcome] may delay people looking to sell their company.”
If, however, you’re still looking to sell, Sahyoun says now is a great time to do it. “The valuations being paid today, and over the last few years, are way, way higher than when we started—30 or 40% higher, in some cases. I think it’s a really good time for folks to consider selling.”
MSPs Now More Savvy about Post-Sale Roles and Goals
Elliot Hyman, CEO of Lyra Technology Group, a platform company of Evergreen, noted a trend of increased awareness of potential post-sale outcomes from MSPs who are considering a sale, and that they are more in tune with the different types of buyers. “What I think has happened over the last five years is that we’ve gone through this big wave of M&A, where most folks who still own their MSP know at least one person who’s sold to different types of strategies. It’s been given time to play out.”
He adds, “It feels like there is an increasing recognition that the consolidator integration model has very meaningful drawbacks, and that oftentimes sellers are cast aside in that process.” However, he admits he might be biased. With Evergreen’s model, the MSPs remain independent, and former owners can continue working at the business in some capacity, step back into an advisory role, or completely exit from the business.
“I think there’s more understanding of what happens next than there was a few years ago, just because time has passed and there’s been so much activity. I think sellers are better informed about the medium-term outcome of their transaction than they’ve ever been. They’re able to see it firsthand.”
Advice from MSPs Who Have Been There, Done That
Some of the most important advice for MSPs looking to sell is to increase their MSP value and get their house in order, from financials to legal documents. This can seriously simplify the due diligence process. But beyond that, MSPs who have already sold their businesses offer some of the following advice.
“Have a conversation with Evergreen early in your journey,” says Keith Barthold, of MSPs who might be considering selling to Evergreen. Barthold sold his MSP, DBK Innovative, to Evergreen in October 2023. He has since become an advisor there, guiding other MSPs through the sale process. “Getting to know the buyers, understanding what they’re looking for, and taking their guidance on how to grow MSP value is really important,” he says. “Build your business with the end in mind. Build towards eventually exiting, whether it’s going to be a year or 10 years from now. It’s a good way to run a business. If you create a great company that’s improving day in and day out, in the end, you’ll have a hard decision on whether you want to keep the company that you’ve built or sell it. But those are great options to have.”
“Brush up on your finance acronyms,” says Dave Birk, former owner and current partner of Network Doctor. “And don’t overthink it. You’re not going to be the first person to sell a company. You’re not going to be the last. There’s a lot of people that have done it. Every scenario, for the most part, [of the sale process] has been taken into account. Once you know [selling] is something you want, for whatever reason, get in that mindset and prepare yourself.”
Know What You Want— And Extract Yourself in Advance
Jeff Gaines, former CEO of Interlaced.io and current regional CEO at Lyra, advises setting up your MSP to run without you pre-sale. “The more you can do that before you’re ready to exit the business, the more successful the business is going to be, the happier your employees are going to be, the happier your clients are going to be post-sale. If you’re truly in that executive chairman position, then you’re in good spot.”
“Be crystal clear about what outcomes you want and why you are making that choice,” says Hyman. “And take a vacation. There are so many people who sell their businesses who are just tired. They haven’t done something for themselves in years. Those are usually the folks who, I don’t want to say regretted, but weren’t fully prepared for life after sale.”
Hyman also advises talking to people who have sold to the buyer you’re considering, beyond their spokespeople. “Go down their list,” he says. “Talk to the people [the buyer is] not telling you to talk to, that you’ve never heard of before. See what their experience was. I would say that’s a good process to go through, if you’re going to sell something that you’ve spent a few decades building.”
To hear from another MSP who boosted their MSP value and sold to Evergreen, read this inteview with David Javaheri, president of Direct IT.
