IT’S A GOOD TIME to be an MSP. It’s a really good time, though, to be a big MSP, according to Tim Conkle, CEO of MSP collective The 20.
“”The market is incredible,”” he says. “”Any IT company out there that is good and not growing has a leadership problem or a vision problem.””
Indeed, the global managed services market will be worth a projected $243.33 billion this year and climb at a 12.6% CAGR through 2028 to over $557 billion, according to Fortune Business Insights. That has private equity firms, which are currently sitting on some $2.3 trillion worth of uninvested capital, according to S&P Global Market Intelligence, snapping up MSPs left and right.
“”Even a shitty IT company can sell for a decent multiple right now, because there’s so much demand for it,”” Conkle observes.
A good IT company, though, can sell for a better than decent multiple and a good, big IT company can sell for an incredible multiple. “”I used to talk about a 10x multiple,”” Conkle says of The 20. “”I think we’ll go somewhere between 17 and 25.””
That milestone is now about five years away, Conkle estimates, and has a big “”if”” attached to it. The 20 will become the $1 billion MSP he believes it’s destined to be if it grows beyond its roots as a scrappy collection of mostly smaller MSPs banding together to leverage economies of scale.
“”We have to become a platform. Not an IT company, but a platform,”” Conkle says.
What’s the distinction? An IT company, even one with a national footprint like The 20, typically has inconsistent processes and unpredictable growth. From a PE investor’s perspective, cleaning that up after an acquisition is an expensive, disruptive process that takes time and alienates customers. A platform arrives with a proven, uniform operating model already in place, along with big-time earnings that rise rapidly and consistently every year.
Today, Conkle says, The 20 is an IT company. In 2022, it plans to take big steps toward becoming a platform.
Operational Maturity
Step one will be the launch of a giant sales and marketing campaign aimed at producing the kind of EBITDA figures that get a private equity firm’s attention. Not that The 20’s financials aren’t already healthy, Conkle emphasizes.
“”We’re doing millions a month in sales right now as a collective,”” he says. It needs to clear many more millions a month to command a 20x multiple though. “”We have to grow,”” Conkle says. “”We have to grow a lot, and in order to do that we have to market a lot.””
A year ago, with that goal already in mind, Conkle was talking about calling every business in the U.S. and Canada that fits its target demographic. That’s roughly 17 million organizations, and The 20 is now pulling them into its freshly deployed sales and marketing automation system about 100,000 at a time. Most of those companies already have an MSP, and Conkle intends to use his pricing power, 24/7 help desk and SOC, and other big-player resources to displace a lot of them.
“”The 20 calling their customers is not going to be a happy place for them,”” he predicts.
Step two in The 20’s platform journey next year will involve something Conkle considers even more critical. “”At the end of the day, great salespeople sell great deals, but they never keep them,”” he says. “”It’s the operations side that keeps them.””
Getting ops right, he asserts, is all about standardization. MSPs in The 20 mostly employ one tool stack and shared contracts already, but Conkle wants to both standardize and optimize everything they do.
“”If we all sing the same song, we sound like a choir,”” he says.
To lead the choir, The 20 named Ken Pecot, a veteran of NETSCOUT, Real Networks, and Nortel Networks with experience running $2 billion business units, its first-ever COO in September. His charter is to refine and roll out a single set of processes, policies, and KPIs companywide.
“”You’re going to see real operational maturity,”” Conkle vows.
Ready to Roll Up
Perhaps the biggest imminent step of all toward platform-hood for The 20 is a milestone Conkle thought as recently as a year ago was still well in the future: initiating a long, slow rollup of The 20’s most successful, standardized, high-growth members into a single corporate entity.
That’s a major departure from the group’s original value proposition, which was all about enjoying the benefits of scale without sacrificing your brand or independence, and Conkle freely acknowledges that not every member of The 20 will be eager to sell. Consolidating those that are ready to roll up will make closing a big-ticket PE deal much easier down the road, however.
In conjunction with that process, there will be continued change in the kind of MSP that belongs to The 20 going forward. The company has already dropped about 75 members since the start of the pandemic, mostly because they lacked the growth-first DNA Conkle prizes. It’s also generally stopped recruiting smaller MSPs. “”A guy that comes along now that has 100 endpoints is not for us,”” says Conkle, who’s far more interested in landing firms with millions in revenue these days.
“”They want to step up into that elite group that gets the unicorn multiple,”” he explains of such companies. It’s a dream Conkle and a lot of MSPs in The 20 can identify with.
“”Ultimately, everybody wants to be part of something great and big,”” he says. “”This is just a vehicle for a lot of regular everyday IT guys like myself to really do something big.””
