The Art Of Acquisition: Buying Into Managed Services

All Covered, the managed services division of Konica Minolta, serves as an interesting example. Although All Covered started as an MSP from the outset, it has vastly expanded its footprint by acquiring more than 20 other MSPs in recent years. As the purchases continued to round out the company's presence in major cities, All Covered established a tiger team and developed a semi-formal process around identifying target companies and closing deals.

"It starts with finding out who is the biggest and the best player in the geographical market and determining if they might be for sale," said All Covered President Todd Croteau.

All Covered looks for companies with 10 to 250 people, and revenue of at least 60 percent to 75 percent recurring. A good-size MSP might get $6 million to $10 million in revenue, he said.

"We do profiles on them, and establish things like the owners' disposition, the number of employees, top priorities, and other things that roll into whether or not they might be a good fit," Croteau said.

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The company's culture also is a consideration. MSPs with only four to six people and making barely $1 million are not acquisition targets.

According to Croteau, once there is mutual interest, All Covered conducts much deeper analysis to make sure the acquisition target's finances are solid, and that there will be no surprises as the process continues.

"After having looked at hundreds of these companies, we can quickly identify a good match, and determine where they are strong and where they are weak," he said. "Once we decide to go, we make the case to our management in Japan, and make a business case for the purchase price. Then they choose to fund or not fund."

The Konica Minolta team in Japan scrutinizes potential return on investment and growth rates. "Predictability of growth is a big driver," said Croteau. "We look at the revenue structure, the repeatability of the revenue, and the suggested EBITDA. At that point, the negotiation begins. We've had a lot of success with these processes. We've closed 12 of our last 14 deals."

After the sale is concluded, the emphasis shifts to the integration aspect, both in terms of dealing with systems and people.

"The first focus is on the employees," said Croteau. "The first 30 to 60 days is spent getting their people into our system, including their pay and other HR-related matters. We keep the acquired company on its own system for the initial 90 days, but we have very tight reporting requirements for our own company."

Once employees are integrated, All Covered's integration management office tracks all of the functional areas, such as marketing, sales, engineering and IT. All of this integration needs to be spaced out properly so that the acquired company isn't overwhelmed to the point employees can no longer do their actual jobs, he said.

Croteau added that ultimate success is based on how closely the results match the business plan that was established at the time of acquisition, particularly the degree to which the business is expanding and how well it is opening up new markets. Acquisitions are typically intended to either add to the geographical base, or to add new directions to the business with respect to technologies or vertical markets. Ultimately, the processes come together in ways that coalesce into a unified company, as opposed to a collection of franchises.

"It goes beyond the empirical data," added Croteau. "At the end of the day, it is an art as much as a science."