IT Solution Provider Mergers and Acquisitions Market Heats UpBy Jessica Davis | Print
All Covered recently acquired San Diego-based solution provider The I.T. Pros. It was All Covered's fourth acquisition of 2010, and the company plans several more this year. It's all part of an IT solution provider M&A market that is heating up as tight capital markets and a crippling recession have given many companies the urge to merge.
Doug Ford was never looking for any kind of exit strategy when he started up The I.T. Pros, a San Diego-based IT solution provider and MSP that has grown to a lean 21 employees and three profit centers in cloud computing, managed services and professional services.
Rather, Ford was looking to expand beyond the San Diego market to capture other opportunities around the country. But expansion wasn’t in the cards when the Wall Street meltdown, credit crisis and recession hit. In 2009, after enjoying 100-plus year-over-year growth since he started the business, The I.T. Pros did not grow at that rate for the first time ever.
"The year 2009 was a tougher year than most in terms of acquiring new clients," Ford tells Channel Insider.
So when All Covered contacted Ford to propose an acquisition he "felt that the stars had aligned," he tells Channel Insider. "I was definitely interested from the get go. It was the answer to my prayers as far as how to expand the business."
That's a scenario that's been playing out more frequently lately as M&A in the IT solution provider market has heated up in the wake of a devastating recession and tight capital markets. The current market for VAR and MSP M&A is unlike any that many in the space has ever seen, including Charles Weaver, president of the MSPAlliance and owner of Weaver and Associates an MSP mergers and acquisitions consulting firm. A year ago he was working with two MSP clients who were looking to sell their businesses. That’s more than doubled -- he is currently working with five.
Why the increase? Weaver tells Channel Insider that it's not due to the abundance of MSPs and lack of work. There's plenty of opportunity out there. Rather, the consolidation is being driven by continuing tightness of credit markets.
"The inability to get traditional lending has hurt many otherwise viable MSPs," Weaver tells Channel Insider. "There's an inability to get a bridge line for product work. So owners are having to look at mergers with other companies or else sell the company and get out."
And while more companies are looking to sell, the number of companies looking to buy other companies has remained relatively stable.
"There are companies looking for qualified buyers, but not a lot of companies have access to capital to buy," says Weaver. "There's a shortage of qualified buyers out there that can pull off a deal financially."
But All Covered, founded in 1997, has been on an acquisition spree recently, buying four companies in the last five months, and the company has plans to buy between six and 10 more by the end of this calendar year.
Like The I.T. Pros, All Covered was finding new client acquisitions more difficult during the recession, and not enough to make up for the spending reductions made by existing clients in response to the souring economy. So the company set out on an business acquisition strategy as a way of gaining new customers and filling that need.
All Covered initially grew to a national company through acquisition in the late 1990s. But then the company did not pursue any acquisitions for several years. In response to the recession All Covered restarted its acquisition program about 18 months ago.
Redwood City, Calif.-based company currently has 300 employees, 21 locations, and made the Inc. 5000 list last year with reported revenues of $45 million. the inc 5000 list last year with reported rev of 45 mil dollars
Doug Ford is now director of services with All Covered, and All Covered’s COO Todd Croteau tells Channel Insider that The I.T. Pros had "by far the most advanced and integrated service desk we’d ever encountered. It’s not one we want to interrupt or disrupt.
"…We are really excited about this," says Croteau, talking about The I.T. Pros acquisition. "I came to the company through an acquisition 10 years ago, and I’m authentically excited to have Doug joining the team. There’s a portion of service providers out there that are like Doug – that didn’t didn’t have an exit strategy but wanted to build an organization."