Mergers and Acquisitions, Channel partners, Mergers and Acquisitions

After the Exit: A Former MSP’s Next Startup

Dan Holt, like so many former managed services providers (MSPs) who sell their companies, is getting back into the technology game. Holt is expected to officially unveil his latest business -- BillHero -- in October, ChannelE2E has learned. But before we explore clues about the next-generation bill payment app, here are some lessons from Holt's high-profile exit: Computer Services Inc.'s 2011 buyout of HEIT, a fast-growth MSP.

At the time, CSI had around 1,100 employees and HEIT was roughly 100 employees. CSI's specialty was core banking services, while HEIT offered managed and cloud services to roughly 400 banks and credit unions. Neither CSI nor HEIT disclosed terms of the deal, but HEIT was one of the world's top 100 managed services providers. That ranking was based on a research report and list that I launched as co-founder of MSPmentor (my business partner and I sold that business in August 2011 and exited in April 2014).

Why Sell?

Thanks to some of the confidential data HEIT shared for that research, I knew the company had a strong financial base and an impressive growth rate. So why sell? "CSI is a solid company that repeatedly rated as a top company by employees and third parties," notes Holt. "Of course, the deal made sense for us.  Plus, the market was consolidating in the banking world, so much so that all of our direct competitors have been acquired at this point."


Corporate culture also was an important consideration. "The HEIT team was my second family and sometimes my wife and little girls would argue my first. ;-)  It was critical that  were treated with the utmost respect and had a great opportunity moving forward."

M&A Advice

Looking back on the deal, what tips would Holt offer to IT service providers that are considering near- or long-term exits or ownership transitions?

"It is best to have an experienced investment banker on your side as well as the best attorney and CPA in the M&A world," says Holt. "Don’t take earn outs unless you are okay with not earning -- since about 75 percent are never earned. I didn’t have an earn out. Finally, have 18 to 24 months for both the company and you to reevaluate the future."

Generally speaking, an earn out typically involves the seller receiving some money when the company is sold. The seller receives additional payments when future revenue, profit or growth targets are hit. While popular, the earn out model is risky for the seller -- since potential buyer missteps can undermine the seller's execution on financial goals.

The Transition

When the CSI-HEIT deal was announced, more than two dozen employees were part of the integration leadership team. "Knowing the long-term strategy and vision of CSI, we decided to integrate immediately," Holt recalls. "My team quickly went from just shy of 100 to almost 250.  We strategically changed all reporting structure to do our best to greatly reduce potential “us” vs. “them” scenarios."

Holt spent about three years at CSI after the acquisition, and ultimately exited in mid-2014. Then, he took a year off between CSI and his current startup -- BillHero. That year away from work provided ample time for "Perspective, Family focus, Volunteering, and just purely enjoying life.  We traveled a lot and had some amazing experiences with my wife and little girls."

Holt's story is a familiar one. Over the past decade, leaders at dozens of MSPs and IT service providers have built and sold companies, stuck around for a bit, and then exited to go pursue their next venture. Stories like Holt's helped to inspire ChannelE2E's launch.

billheroNext Move

Much like ChannelE2E's logo, the entrepreneurial journey doesn't have a clear beginning or ending. Most entrepreneurs I know aren't "done" when they sell a company. They're always in motion, thinking about their next move.

For Holt, the next move involves his latest startup -- BillHero. The company's leadership team includes an architect from Google/Android Payments, a Bank Payments Exec, a Payments Entrepreneur, and Facebook Marketing Exec/Leader. "We’ve solved the problem for roommates splitting and paying bills" says Holt. "I’ve been truly blessed to work with such amazing and smart people. "

Official details will emerge in October. Until then: Some grapevine rumors are locked away on my hard drive until the BillHero team (pictured below) is ready to say more...

BillHero Team 2

"After the Exit" is an ongoing ChannelE2E series, profiling executives who have purchased, sold or transitioned the ownership of an IT services business. Please email me ([email protected]) with suggested coverage.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.