Transcript
from those who have gone through or are going through the process and top M&A in business minds to help you maximize the value of your MSP, whether you're buying, selling, or just trying to improve your business. Make sure to subscribe to the Caseio YouTube channel so you know when each episode drops and you can even save the M&A Unpacked playlist for easy access. And today I'm joined by Frank DiBenedetto. He is the go-to market general manager of the MSP suite at Caseio. And he also is the head of the started the M&A concierge platform for MSPs, which hopefully by now you all know about. Frank, thanks for coming on. Thanks for having me, Mike. Always a pleasure. Yeah, it's been a while. You know, you were obviously the first to interview. We talk all the time, but I wanted to bring you back on now because the M&A concierge platform for MSPs has been around for a good while now. And, you know, part of that is you speak to everyone in the platform, almost everyone. And I wanted to bring you on to talk about lessons you've learned, you know, things you've learned about from talking to all of these different MSPs of all different shapes and sizes looking to buy, sell. So to start with, introduce people to the M&A concierge platform for MSPs. Tell them what it is. Yeah, sure. So to start, to your point, it's been almost a year. Last year at DattoCon in Miami, we decided to pre-launch the platform. It was an idea that we had, and it was really designed to help MSPs take advantage of the relationship of Kaseya, where we facilitate the buying and selling that we see going on in the marketplace. We're not brokers in the deal. We're quite simply here to help facilitate. We sit in the middle of, I think, over 35,000 worldwide MSP customers of ours, many of which are getting into the M&A game. And we would see account managers all the time get asked, hey, do you know an MSP in New Jersey looking to sell, or do you know an MSP in San Diego looking to buy? And the account manager would say, maybe, and they didn't know where to go, right? Where would you look? Do you just search in our Salesforce database? Do you ask your fellow account manager? So many times, those asks would fall through the cracks. So we created a platform with a back-end database and a lot of data now where we keep all that information. And as you alluded to, the program is free. We do ask you to apply for a membership, and we do a 30-minute call with you. We ask you to fill out some information. If you're looking to sell, we want some basic touch points about the MSP, like EBITDA range, revenue range, verticals, geography, anything else you think that would be significant. If you're looking to buy, we want to know who you're looking to buy. What's the range in there, too? And a little bit about your company. What's the charter? What are you looking to do? Hey, we're looking to grow this thing to $10 million and then sell it. We're looking to grow it to $100 million. We only want to buy MSPs in the healthcare vertical, like whatever that is, right? That's your charter. And then we're there to help promote the visibility of the buyers and help match them up with potential sellers. We don't do valuations. We don't offer legal advice. We're just quite simply here to kind of play matchmaker as we sit in the middle here. And then as we talk, I can get into some of the nuances, some of the things that we've learned and some of the ways that we help drive enterprise value to the MSPs and help improve the likelihood of success post-acquisition. Yeah. And you talk to buyers, sellers, all sizes. What are you seeing as far as is there a more popular type that comes in? What sizes, what shapes do they come in here? Yeah. So I think from the buy side, it's fair to say that we have all of the large buyers represented in our platform. The big aggregators, the PE-backed MSPs, they're all in there. They are looking to buy MSPs on the larger side, typically a million dollars of EBITDA and above. We don't see a plethora of those MSPs in the platform on the sell side yet. We do have some, maybe a couple per week raising their hands and showing up and saying, hey, I'm interested. But I see on the sell side a ever increasing group of what I would call the million dollar MSP. Right. So there was a time where hitting a million dollars in revenue was like the first plateau. It's like what every MSP strived to get to. I think ironically, that's about, and you had a small business too, a different space, but every business has a threshold where unless you scale the business up with people in process, you can only get it so big as it really is all about you. Right. And about a million dollars in revenue is where I'm seeing that certain MSPs could get to. It's a nice lifestyle business. They're doing a couple hundred thousand dollars of EBITDA. They call the shots. They've been their own boss for a lot of years. They've got 30 to 40 customers that they've had for a long time, low churn. So it's a good, healthy, smaller business. It's heavily reliant on that business owner. And so it's not worth as much as one that's larger, that has people in process in place. Right. So that group of million dollar MSPs, I like to say they've been doing a million dollars for 10 years. Right. They're not really growing. They're just, you know, hovering right about at that level. They're getting a little concerned about what comes next. The majority of them are not ready to retire today, but, you know, maybe in the next three to five years. So they are very interested in what's my MSP worth, who might want to buy me, what a deal structures look like, what do you, you know, those types of things. So that group is emerging. I think that's natural as this industry is starting to mature. What you're seeing is the original people who got into this space as break, fix that converted to managed services. They're starting, I don't want to say they're aging out, but they're getting a little bit older. Right. And they're starting to wonder, like, what's my exit plan look like? So that's, that's something that, that we've seen. Another thing that we've learned is about half of the MSPs that apply for membership as a, as a potential seller are very quiet. Sometimes we even have a tough time getting on a call to talk to them. And you know, what we've determined is, let's face it, if you're going to sell your MSP, you don't put it for sale sign in the window, right? You spook your employees, you alert your competition and you alert your customers, right? And that can create some concerns for you. So they, they want to be quiet about it. So many times they are in the audience, especially if we have, you know, the M&A symposium or other, you know, M&A themed sessions at local events. And they sit quietly. Why? Because they're learning. They want to learn, like, hey, you know, what are my, what are my other peers doing when they sell? How are people buying? How are the structures of those deals? So there's a large desire, I think, for, for thought leadership on the, on the, on the sell side. On the buy side, very similar, is there's a rising group of MSPs that are probably in the $2 to $4 million revenue range, and they want to grow faster. So they've done that organically. And they're saying, hey, I think we want to acquire an MSP or multiple MSPs so I can grow the business more quickly, get to $5 million, $10 million, wherever, wherever they're trying to get to. Many of them have never bought an MSP before, so they don't know where to start. They also don't have access to a lot of capital, right? So there's no P back here. So they can't spend a lot. So who do you think they're looking to buy? The smaller MSPs. So we are seeing a lot more activity at that lower level. The smaller first time buyer going after that million dollar MSP, there's a good fit. And I think that's a great regional play. So I just talked to a gentleman earlier today. He's in North Jersey, and we were able to fix him up with another MSP in North Jersey that would probably like to buy him. Nice regional play. They're in the same area. The owner's going to stick around for a few years, right? So they don't have to worry about, well, who's going to run that business after we buy it on day two. And it's local, so they can handle that business. If you have a very small MSP in Kansas, it's unlikely that the guy in New Jersey is going to be able to buy you and be successful at running that business, because the regions are spread out. So that's some of what we're seeing today, what the numbers tell us. A little bit different than what I had originally expected. This is primarily what I see in North America. We do calls in EMEA and in the APAC regions, a little different there. Because here, you can go a few hundred miles, you're just in a different state. But there, you're in a different country, right? So it is different when you're looking at the regions over on that side. So primarily, my feedback in the majority of the calls that I have done have been in North America. What kind of things are you... What kind of advice are you giving? What do you find yourself answering or saying over and over again that you think MSPs maybe need to hear? Because you've got different buckets now, so maybe you can go through that spectrum. So I think on the sell side, every MSP says, what's my business worth, right? And we're not really here to provide a value, because there's so many things that go into it and in our calls, we don't get that deep into it. But the short answer is whatever someone's willing to pay for it, right? But I think what I can tell you is that most MSPs think their business is worth a lot more. When I say a lot more, I'm talking about a factor of five to 10 more, right? So if an MSP is worth 100,000, they think it's worth a million and we're miles apart. So I could see that there's a lot of room for education around what the realities are. However, what that just tells me is that they want to figure out ways to maximize the enterprise value of their business. And I could tell a seller, look, there's the two best ways I know how you could rapidly increase the value of your business. One is just go sell more stuff. And as someone who's owned a business, you give me the eye roll, like no kidding, right? It's easier said than done. If I could do that, I wouldn't be talking to you right now, I'd be out selling. The other way is a reduction of COGS, right? Let's reduce our costs. And here's what's interesting about reduction in COGS, is every dollar that you save is a dollar to the bottom line. Whereas a dollar of revenue, even at best in class margins is only 20 to 30 cents to the bottom line, right? So if I could reduce your COGS dollar for dollar increase on the EBITDA side. So that's important. Now you can't grow your business on that, but it's a great time to do that. And most MSPs have never done this. So we at Kaseya have a couple we call value maximization processes that we can run you through, right? And we can show you ways how we can creatively potentially switch you over to the IT complete stack. And one of the best entry points today is through Kaseya 365, right? Because that is a SKU that we put together with six or seven components that are all endpoint facing, which means it's easy to rip and replace. Your customers will never know, you don't have to sell anything. They don't care what RMM you're using, right? They don't know what that is. So we find that that's a great way and exercise to go through and potentially a way to immediately reduce your COGS. Now, many people know I had an MSP and I sold that last year. It was all part of a calculated move. I was sort of the guinea pig for some of the processes that we now have formally in place. And I was able to lower my endpoint costs from about $14.60 down to about $5, right? So keep the math simple. Let's say I saved overnight $8 per endpoint. I had almost 3,000 endpoints. You do the math, that's $24,000 of more income or EBITDA every month. Now multiply that by 12 and then put a multiple on that when you sell your business. That put a lot of money in my pocket, it's a lot of enterprise value. And somebody might say, well, I don't want to sell a business. That's fine, reinvest it or put it in your pocket, right? You want it? Go buy a bigger house or a boat or something or reinvest in the business, right? Hire two salespeople or reinvest in marketing. Use the money to acquire another business, right? So we go through this with a seller, but it's also great for a buyer because here's the other thing. If we're doing that with sellers, what does it mean? That all of them are going to start to look like this, they're all going to be on the same stack, right? They're all going to be powered by Kaseya, if you will, as I liberally use that term. But if you're powered by Kaseya, one of the things that we heard from buyers is that after acquisition, sometimes it can be a challenge to integrate the two companies, right? You have RMMs, you have PSA, you've got to get all that stuff together. Well, guess what? It's a whole lot easier for us to do an integration on the backend, if you're both using IT Glue or Datto RMM, than it is for you to do a migration if you have to go from, say, ConnectWise to Datto or across platforms. So a lot of buyers see the value and they say, yeah, we want to buy more MSPs and we would love to get more referrals from you, but we see that you're putting them onto IT Complete. Yeah, it's probably worth it for us to look at getting onto IT Complete. Same value maximization programs apply to the buyer except that the EBIT that we drive frees up cash that they can buy MSPs. So you could see how we can facilitate this using what we specialize in, especially these days, which is helping to drive profitability for MSPs. Very cool. So what kind of, other than that, is there any other pieces of advice that you're giving to folks when they get on these calls with you that you hear yourself saying over and over again? Yeah. So, look, I've had in my career as an MSP, I had some people that were influential to me, right? I think it's best to learn from others that have done it before you, why try to figure it out on your own? It just takes longer and you're bound to make more mistakes. So for me, one of my mentors early in the business was Gary Pica. We affectionately call him the MSP legend, but the reality is that Gary's been doing this a long time. He's a really smart guy. And not only that, but he built a program called True Methods and a peer program called True Peer. So we have some MSPs who come in and say, well, look, I'm not ready to sell today. I think I'm 12 to 36 months out, but there's a bunch of stuff that I need to fix in my business operationally. I need to look at my P&L and restructure it. And so we're not going to create a parallel program to do it. We have the best person to learn from, right? So I've teamed up with Gary and he now has some pods that have MSPs in it that are dedicated to just ones that are looking to exit in the next 12 to 36 months. So they're taking the journey together. So they're learning from each other. They're learning all the same principles that Gary would teach anyway around, you know, best in class numbers or what we call economics, right? And I think Gary says, you know, business that's good to sell is also one that's good to run, right? So whether you keep it or whether you just want to run a business well, it serves the same purpose. So I tell the potential sellers, it's almost like I'm sending you to finishing school. Now the buyers love that. The buyers are like, you mean to tell me that you're graduating these folks out of this so-called finishing school and they're going to be all sorts of cleaned up on the IT complete stack already and like a better buy than someone who wasn't. Absolutely. So buyers are on board and say, yeah, just let me know how I can, you know, how I can gain greater visibility and hopefully be seen by these potential sellers and get some additional leads. Cool. Well, in a couple of weeks, we're going to be at DattoCon again. We have another M&A symposium. By the time this comes out, it may be, I don't know if it's too late to buy DattoCon tickets. You may be sold out, but tell us what's coming at the M&A, what they can look forward to at the M&A symposium. Yeah. So, you know, I've been committed to trying to make it, that's a pre-day, right? So the M&A symposium is a day before DattoCon or Connect. And we've done that for a while now, but since I've taken it over, you know, I've, you know, made it my mission to make sure it's an interesting day. I didn't want to just put a bunch of, you know, big MSPs up on the stage telling their story about how great they were, because I think, you know, there's a disconnect between the people in the audience. It's filled with educational sessions, not only for sellers, but for buyers, because we know there's a lot of potential buyers in that room. They want to learn how do you value MSPs, how do you structure deals, what do you look for, right? And then the sellers are thinking like, I wonder what my MSPs worth, like, what do you look at? What's like the top three things I can do to, you know, quickly drive enterprise value in my business, right? We have a really cool session that I came up with, and we did it in Las Vegas. It's a shark tank style preso that we call the Bark Tank, right? So it's a nod to our friend Cooper, the dog. And what we're going to have are four MSP buyers on stage. And they're going to be given a fictitious MSP that's looking to sell. And they have, I think, 12 to 15 minutes to do basically a presentation and showing the valuation. And they go through how they looked at that business. They go through, you know, how they came up with the value. They talk about the ad backs and some gotchas, and we throw some curve balls, we try to make it as real as possible. And it's a super fun session, because you get four perspectives, four different buyers tell you, here's how we would look at this business and what we think it's worth. Some cases, they give you an offer, and other cases, they've given us a range and say, we'd like to learn. We definitely are interested, we just need to know more about, you know, A, B, and C. People love the session, it's engaging, and we do about a half an hour Q&A at the end. We probably could have gone for two hours. So those are some of the things that we do at the M&A Symposium. Every one of them has been standing room only, they all sell out. And, you know, I think in Las Vegas, we had over 800, and in Abia, we had over four or five hundred, and we're going to have standing room only again in Miami as well. Yeah, it should be a great time. And I'll be, along with Alina, we'll be at the M&A booth. So if you're at DattoCon, come over and see us, say hi. Absolutely. Frank, before we go for today, you know, just leave off with who should contact you? Where should they go? What should they do to learn about the M&A Concierge platform, and who's a good candidate to sign up? Yeah, so I think the easiest way is to go to www.casea-ma.com, and there's a link on there to apply for membership. There's a good likelihood you'll do a call with me, and then once you're on the platform, you'll start getting communications, podcast episodes, newsletters, invitations to special webinars and local events. That's the easiest way. If you can't or don't want to go to the website, come see us at our booth at DattoCon, and you can sign up there. And again, there's no charge for this. So if you're interested in M&A, there's really no reason to not do this. 100%. Well, thank you, Frank. I can't thank you enough for taking the time out of your very busy day to share with the MSP community. And for everyone watching, we thank you and tune in every week on the Casea YouTube channel for another episode of M&A Unpacked. And as Frank said, if you're not yet a member of the M&A Concierge platform for MSPs, make sure to apply today. It's an amazing platform. It's 100% free for both buyers and sellers. See you next time, everyone. Thanks, Mike.
