MSP Acquisitions: Nerds On Site Pursues Multiple Buyouts
Nerds On Site is seeking multiple MSP acquisitions as part of a North American expansion plan, the London, Ontario, Canada-based managed IT services provider says.
The initial M&A plan calls for four acquisitions — three in the United States and one in Canada. The company did not disclose a timeframe for completing those MSP acquisitions, but at least one purchase is expected to be completed this year, Nerds On Site indicated.
Ideal acquisition targets are MSPs with $1.5 million to $2.5 million in annual contract revenue, Nerds On Site says. The company did not describe ideal profit margins, growth rates or specific regional locations for such deals. Also, we’re double checking to see if the financial figures are in Canadian or U.S. currency.
In a prepared statement about the M&A strategy, Nerds On Site CEO Charles Regan said:
“NERDS is in an ideal position to scale its best practices in the lucrative Centralized Managed Services business through strategic and targeted mergers and acquisitions. We have a proven and systematic approach for success, our key identifier and attraction attributes checklist will guide decision making and focus energy on the right targets at the right time within our attribution range.”
ChannelE2E is checking to see if or how the M&A strategy aligns with Nerds On Site’s franchising model.
Nerds On Site: Business Model
Nerds on Site uses a revenue sharing model in Canada, and intends to extend that business model into the United States, according to an investor deck from the company. Again, we’re checking to see how the M&A strategy potentially aligns with the franchise model.
According to the undated investor deck, the company says:
- EntrepreNERDS (eNerds: independent contractors) share between 37 percent to 50 percent in revenue from each contract that they sign.
- Using this model, Nerds On Site has generated annual revenue of $8 million to $10 million.
- The company will be selling franchises to approximately 150 eNerds in 10 cities in the U.S., rolling-out an ‘Area Developer franchise’ model. The company expects this to double their revenue to $19 million annually using that model, though a timeframe for that revenue goal was not disclosed.
- The eNerd ecosystem is typically trained to support Google, Microsoft, Dell, Amazon and Cisco environment.
- Nerds On Site has its own platform for billing, purchasing and communication between the company, its customers and contractors. We’re checking to see if it’s a homegrown system or third-party SaaS solution.
- Key investors in the company include Stadnyk and Partners along with Go Capital, a private capital company.
- Nerds On Site’s management team holds 50 percent of the shares.
Nerds on Site: IT Services
The company offers a familiar list of IT services to small and midsize businesses, including:
- managed IT services,
- 24/7 proactive monitoring,
- disaster recovery and business continuity,
- hosted email solutions,
- hybrid IP phone solutions,
- IT assessments and consulting,
- IT help desk and outsourcing services,
- mobility solutions,
- network solutions services,
- onsite SMB IT support,
- web hosting,
- wireless networking, and
- web, application and database development.
Nerds On Site also offers a residential service package spanning hardware, software and consulting offerings, for which they charge by solution, and not by the hour.
MSP Mergers and Acquisitions: Intense Buyer Competition
Nerds on Site has a database of roughly 3000 MSPs that fit its initial target profile. Still, finding and acquiring ideal targets won’t be easy. Multiple investment firms, private equity firms and MSPs are pursuing MSP rollup strategies across North America and Europe.
Key movers have included:
- Abry Partners has fueled multiple buyouts
- Ardenton Capital Corp. invested in Achieve One, a fast-growing IT architecture and services organization.
- Alvarez & Marsal Capital acquired a majority stake in CNSI, which specializes in healthcare IT management technology.
- CareWorx Fully Managed, backed by private equity, is in the market for acquisitions.
- CompassMSP has acquired multiple MSPs in Florida and beyond.
- Evergreen Services Group, backed by Alpine Investors, has acquired roughly a dozen MSPs.
- Madison Dearborn Partners (MDP) in April 2018 acquired Remote DBA Experts (RDX), an MSP that provides remote database administration (DBA) and cloud managed services. It sounds like additional tuck-in acquisitions are planned.
- Mayfair Private Equity in May 2018 acquired UK-based GCI, and plans to tuck multiple companies into the ICT provider.
- M/C Partners acquired Thrive Networks in late 2016 and has since tucked in multiple businesses.
- NuMSP has acquired roughly 11 MSPs.
- RLJ Equity Partners has acquired multiple IT service providers.
- Sentinel Capital Partners acquired UBEO Business Services, a provider of printer, copier, and related office equipment.
- Trace3, backed by private equity, remains in growth mode.
MSP Mergers and Acquisitions: Caution Sign
Although the overall MSP M&A market remains strong, ChannelE2E is starting to see signs of fatigue. In particular, buyers are struggling to find well-run, growing, and profitable MSPs that have reasonable “ask” valuations, according to multiple sources from whom we’ve heard in recent weeks.