BIG MSPS ARE BUYING UP smaller ones. Deep-pocketed private equity firms are eagerly getting into the managed services market. And Tim Conkle, CEO of managed services co-op The 20, is starting—just starting—to think about getting out.
“”I think in five to seven years, a PE firm’s going to walk into The 20 and say, ‘Hey, we want to buy everyone,'”” says Conkle. “”I think that’s the end game.””
Formed in 2014, The 20 is a collection of MSPs who share a standardized set of tools, processes, and service offerings, plus jointly owned 24/7 network and security operations centers, all of which are designed to let members enjoy the reach and efficiencies of a big firm while remaining independently owned.
Conkle plans to expand the group’s roughly 180 members to 500 and turn each of them into $5 to $10 million companies along the way. If he pulls it off, The 20 as a whole will be a $2.5 to $5 billion managed services behemoth that even a typical private equity buyer might have trouble digesting alone.
“”We may be too big at that point for one to buy us,”” Conkle observes.
A whole lot more needs to happen before that day arrives, however. The coming year is when the process starts in earnest, according to Conkle. “”We’re now going to go into a new phase, and that’s a growth phase,”” he says.
The De Facto Competition
Though establishing a coast-to-coast footprint has been priority one for The 20 to this point, Conkle considers the bulk of that work done now. “”We’ve got all the major cities,”” he says.
The new mission is helping members add millions to their top line, and Conkle has a two-pronged plan for accomplishing it. The first part is in-depth mentoring. Members billing less than $1 million a year currently will be assigned to a “”growth group”” where they’ll master the sales, operational, and other techniques used by mature members of The 20 to scale up. Mark Elliott, formerly head of a $10 million MSP in Houston and now The 20’s chief revenue officer, will lead that program.
More established members will participate in a “”CEO circle”” led by Conkle himself. “”I’m going to take them to the $5 million-plus mark,”” he says.
The “”aggressive, aggressive, aggressive”” marketing effort Conkle will use to get them there is the second element of The 20’s new growth strategy. “”We’re going to call every single company that fits our demographic in the U.S. and Canada,”” Conkle says. That, he pointedly adds, very much includes the companies ChannelPro readers serve at present.
“”Your clients are going to most likely talk to us,”” Conkle notes. “”We’re going to become the de facto competition everywhere in our footprint.””
The message his team delivers on sales calls will be a variation of the pitch many MSPs use themselves when telling potential customers they’re better off hiring a 10-person outsider than relying on one internal IT employee. “”I’m going to say, ‘Hey, why in the world would you ever go with a 10-man company when you can go with 1,100 employees based all over the U.S.,”” Conkle explains. “”That’s their own words being used against them.””
A PE Firm’s Dream
In some ways, it’s a curious time for anyone to be chasing growth. Coronavirus infection rates are at all-time highs, employment continues to lag, and business-to-business technology sales through the U.S. channel dipped 4% year over year through the third quarter of 2020, according to NPD. On the other hand, the sudden shift to work-from-home computing has even midsize companies with in-house IT teams signing “”co-managed IT”” deals with MSPs in mounting numbers.
“”You just created 50 networks instead of one, and they just cannot do it with the one or two people that they had before,”” Conkle says. “”I see a ton of new doors opening up by virtue of what’s going on.””
It takes breadth of services and depth of resources to charge through those doors, though, and MSPs increasingly recognize it. “”We’re seeing this incredible, incredible, incredible amount of mergers and acquisitions going on,”” observes Conkle, who expects The 20’s own members to begin consolidating soon too. “”I think that you’ll start seeing a roll-up inside The 20 in the next five years,”” he says.
Private equity investors, who were bullish on managed services before COVID-19’s arrival, are rolling up MSPs too. “”Big firms have figured out that there’s really good money in the IT space if it’s done right,”” Conkle says.
The “”if it’s done right”” part is key. According to Conkle, most MSPs struggle at sales and employ inconsistent operational practices. “”They buy the same problems over and over,”” he says of PE firms. The 20, by contrast, has proven methodologies in place for everything from lead generation to service delivery. “”We’re going to be a PE firm’s dream,”” Conkle predicts.
And a smaller MSP’s nightmare, he adds. Remote workers with flexible hours often need IT assistance well into the evening. “”What happens to that 8-to-5 IT company when that guy needs service after hours?”” Conkle asks. “”How are you going to compete? You can’t.””
That, as Conkle sees it, may be the most compelling reason of all for channel pros to join The 20. “”We know how to market, we know how to sell, and we know how to scale our business super, super fast,”” he says. “”You’re going to be with us or you’re going to compete against us, because we’re coming.””
