Converge Technology Solutions has acquired Nordisk Systems, an IBM partner in Portland, Oregon, focused on infrastructure, cloud, security, analytics, business continuity and managed services solutions. The companies also plan to assist customers that want to leverage IBM's pending buyout of Red Hat.
The deal's valuation was revealed through a series of specific financial disclosures. For the 12 months ended April 30, 2019:
- Nordisk's revenues were roughly US$19.3 million.
- Adjusted EBITDA was roughly US$1.5 million.
Converge says it will pay:
- US$2.5 million in cash on the closing date;
- US$2.0 million in cash on September 30, 2019 ;
- a promissory note in the amount of US$2.0 million in favor of the sellers; and
- up to an aggregate of US$3.0 million in earn-out payments for the three years following closing of the acquisition.
Converge Technology Solutions Acquires Nordisk: Deal Valuation
That's a total purchase price of $9.5 million -- or roughly 6.3 times annual adjusted EBITDA for the 12 months ended April 30, 2019. Still, Converge says the true multiple will be closer to 3.9 times average adjusted EBITDA over the earn out period, based on the minimum adjusted EDITDA required to achieve the full earn-out.
Most MSPs — which tend to have heavy recurring revenue — are selling for about 4X to 8X annual EBITDA. The multiples tend to be 4X to 6X for all cash up-front deals. The higher valuation deals tend to involve pure recurring revenue, healthy EBITDA profit margins (15 percent plus) and performance-based earn outs over a year or two, according to ChannelE2E conversations with M&A participants.
Converge has acquired nine technology consulting firms since October 2017 . Converge's family of companies also includes Corus Group; Northern Micro; Becker-Carroll; Key Information Systems; BlueChipTek; Lighthouse Systems; Software Information Systems; and Essex Technology Group
Converge Technology Solution Acquires Nordisk: Executive Roles, Perspectives
Under terms of the deal, Nordisk CEO Deney Dentel and the Nordisk management team will remain in their existing roles.
Working with Deney, Converge will look to extend Nordisk's capabilities and solutions to customers across North America while introducing Converge's Hybrid IT solutions including identity-based enterprise Blockchain, cognitive, cybersecurity, resiliency managed services and multi-cloud solutions to current Nordisk customers, the two companies say.
In a prepared statement, Dentel explained:
"Our team at Nordisk is dedicated to relieving customer technology burdens since 1983. Our exceptional staff of highly certified industry veterans, and our longstanding relationships with manufacturers and building relations with emerging technology manufacturers deliver the highest quality technology and remain on the leading edge. As trusted advisors, we enable our clients to exceed their goals and objectives to ensure long-term success. The fit between the companies made perfect sense. I couldn't be more excited about what is ahead for the Nordisk team and our customers. The Converge culture and their way of doing business is spot on."
Added Shaun Maine, CEO of Converge:
"We are pleased that Nordisk is joining the Converge family of companies. As a longstanding and top tier performer in the IBM ecosystem, Nordisk extends our IBM footprint allowing Converge to expand our software strategy, particularly Red Hat after its acquisition by IBM is completed. Nordisk also provides geographical coverage in the Northwest as part of our 3 phase plan to be a premier North American Hybrid IT provider."
IBM is expected to finalize the Red Hat buyout this year, though Brazil regulators have pushed back a bit seeking more information about the deal.