Mergers and Acquisitions, MSP

BrightWorks IT’s Strategic Approach to Mergers and Acquisitions

Hackers for Charity

Consolidation through mergers and acquisitions (M&A) has long been the norm within the managed services provider (MSP) industry. But the last few years have seen M&A activity rise to a fever pitch as companies from every imaginable niche are buying each other up at a near record pace. In 2023, ChannelE2E and MSSP Alert collectively reported on 339 deals and there were dozens more that were mentioned in our daily roundups. This year, we’ve already reported on more than 120 deals and there are more every day.

Within this environment, a new type of platform MSP has emerged. These companies, some backed by private equity and others who aren’t, buy up MSPs and onboard them into a collective group. Companies like The 20 MSP, Evergreen, New Charter, and BrightWorks IT are a few of the names at the forefront of this evolution.

Each of these platform companies has its own strategy and methods. Some companies are acquired and rolled into the overall brand, other companies maintain their names and just gain access to collective resources. Some platforms prioritize specific expertise, vertical markets or geographical reach, while others emphasize rapid growth and profitability.

For its part, BrightWorks IT prioritizes cultural fit as a core element of its acquisition strategy. 

“We do this with heart,” Damen Seminero, chief operating officer, BrightWorks IT, explained to ChannelE2E. “We really like to get to know the team, the owners, their philosophy, their ethos. It’s a business, so we want everything to be successful. But there’s also a heart to it and the ability to carry on a person’s dream.”

BrightWorks IT was established with a vision to blend technical expertise with a strong cultural foundation, according to Seminero. He said the company’s leadership prioritized collaboration and inclusivity from the outset. Seminero emphasized that this foundational approach, which focused on shared values and clear goals, helped guide the company's early growth and continues to shape its strategic direction today.

About BrightWorks IT

BrightWorks IT is a network of MSPs that share resources, best practices, and expertise. The company is backed by private equity firm Cloud Equity Group.

The ecosystem currently includes:

BrightWorks previously acquired Key Technology Solutions in December 2022 and IS Concepts in October 2022.

Acquisition Criteria

It’s an approach that seems to be serving them well, given that they’ve acquired seven companies in two-and-a-half years and are planning on three more acquisitions before the year’s end. 

This is also due, in part, to the company’s well-defined criteria for evaluating potential MSP acquisitions. As Seminero explained, the company looks to fill competency gaps or provide new expertise to expand its capabilities into new industry verticals and service offerings. Financial stability and potential for growth are important, according to Seminero. 

The goal is to identify acquisition targets that will integrate both operationally and culturally, with owners and management that are a strong personal fit with the BrightWorks team, said Seminero.

“The primary concern is whether this acquisition is going to give us a competency we don't have? Is it going to bring added value to the greater organization?” said Seminero. “Those are the first really big business thoughts. What does profitability look like? It's those things, too, but it really does come down to the staff and the clients and how they are today. Their happiness, how the clients are being serviced, how the techs work, what systems are currently in place to make sure that we can take those over and make them ours.”

BrightWorks IT often works with MSP brokers to identify potential acquisition targets that meet those key criteria. Brokers play an important role in initially connecting BrightWorks with MSP owners who may be open to a sale, according to Seminero. 

During the early pre-acquisition conversations, BrightWorks takes time to understand the MSP's leadership team, culture, and values. They look for qualities within the existing leadership that will help facilitate a smooth transition and integration within the BrightWorks organization. Leaders who demonstrate the ability to guide their team through change while maintaining business continuity are highly valued, says Seminero. BrightWorks also evaluates whether the MSP's management style aligns with their approach of prioritizing client and employee needs. This focus on assessing leadership traits early in the process helps the company select targets most likely to fit within the BrightWorks family of companies.

The Genesis of BrightWorks IT

The founding of BrightWorks began as a natural extension of the managing partners’ previous experience starting a hosting company that required acquiring other hosting businesses to support its operations. 

As Seminero explained, "Our first conversations had a lot to do with ‘What are the imperatives?’ ‘What is going to make these first two acquisitions work well together?’ ‘What are the obstacles we need to address immediately?’”

“The exercise had a lot to do with understanding the teams and getting buy-in from them to become a part of this new idea,” said Seminero. “Really, the first two or three locations just helped us shape the feeling.”

Due Diligence and Integration

BrightWorks IT's due diligence process can vary significantly. As Seminero mentioned, "It can take 60 days to 6 months," to complete the entire process, with 60 days being a completely ideal situation and six months being more common.

Once an MSP is acquired, BrightWorks aims to seamlessly integrate the new business while maintaining continuity of service. "It's like a daisy chain of support," Seminero said. "We've had the great opportunity of acquiring a business and finding the most talented people doing admin work." By setting this as a goal, each link in the support chain is interconnected, working together to provide continuous support and assistance throughout the integration process.

The BrightWorks team works to onboard acquired MSPs quickly onto shared systems and processes. But they also respect the legacy brand identity and culture, retaining existing staff through the transition period. This sensitive approach helps minimize disruption for both clients and employees during the integration process, according to Seminero.

BrightWorks places strong emphasis on transparency during the acquisition process to avoid potential red flags. Any lack of transparency or honesty from sellers could represent a major issue, according to Seminero. They aim to ask probing questions in multiple ways to ensure a full understanding is achieved. 

Being upfront about any existing challenges or issues early in the process is valued by BrightWorks, even if the situation can be overcome. This allows them to properly assess and address concerns before moving forward. 

Overall transparency is key, as BrightWorks wants to feel confident they understand both the opportunities and risks presented by a potential acquisition. Their due diligence aims to identify any misalignments early to avoid red flags derailing a deal later in the process.

Cultural Integration and Community Engagement

Cultural integration and maintaining community relationships are highly valued by BrightWorks IT. When acquiring an MSP, they aim to sensitively blend the new business into their operations while respecting the existing culture. 

“It feels right to leave the brand intact and just to add a little Brightworks IT tag,” said Seminero. By preserving the legacy name, Brightworks hopes to maintain trust with the local client base, he explains.

They also seek to continue the acquired company’s prior involvement in the community. “We maintain all of the relationships,” Seminero said. “If the location has made investments in certain charities or community organizations for years and years, we continue that.” Maintaining engagement with local causes helps BrightWorks feel like a natural extension of the MSP, not disruptors of community relationships, according to Seminero.

Leadership and Employee Transition

BrightWorks IT takes a personalized approach when integrating former owners and employees into its new structure. For Seminero, it’s important to understand the aspirations and goals of the team members involved as they work to close a deal.

“We know what they want to do before they ever finish,” he said. “Half the time they might want to do something else, but they’re not really sure what that something is. So we maintain relationships with people even after they leave. I do take it personally.”

And it is personal for Seminero, who has helped former owners and employees with their career transitions, offering support ranging from resume creation to making professional connections in new fields.

The company values the experience and knowledge of former owners, often integrating them into key roles within BrightWorks IT. 

“Our CTO was a former owner,” he said. “He was one of the early employees.” This practice not only retains valuable expertise but also ensures continuity and a smooth transition for the acquired company, according to Seminero.

Competitive Edge and Future Outlook

When asked why MSPs might choose BrightWorks IT over competitors like New Charter or Evergreen, Seminero points to his company’s distinctive culture and dedication to nurturing relationships with both clients and staff. 

“What always wins for us is we do have that heart,” Seminero explained. The company prioritizes delivering high-quality services while ensuring the teams remain aligned and engaged, providing a supportive environment for employees to grow and thrive, according to the COO

In terms of a long-term strategy, BrightWorks IT wants to enhance its service offerings and expand into new markets while maintaining a strong company culture. Seminero and his team plan to continue growing through strategic acquisitions aligned with their vision and values. Although exit plans are never off the table, Seminero prefers to remain adaptable, emphasizing that any exit strategy would hinge on finding the right conditions for BrightWorks IT's long-term goals.

Community, Culture and Strategic Growth

For BrightWorks IT, M&A in the MSP space is built upon community, culture, and strategic growth. By prioritizing cultural fit and transparency, the company hopes to ensure smooth transitions for both employees and clients of acquired businesses.

Their strategy of integrating former owners and leveraging their expertise within the organization fosters continuity and stability, according to Seminero. 

While the company remains focused on enhancing its service offerings and expanding into new markets through acquisitions, BrightWorks IT seeks to maintain its company culture. Their approach reflects an adaptable strategy that allows for long-term growth and stability. This focus on sustainable expansion provides insight into how some MSPs are approaching the rapidly changing market.