ConnectWise plans to introduce new facilitator-led, peer-to-peer education groups for buyers and sellers of managed services businesses and value-added resellers.
The Tampa, Fla.-based vendor announced both programs at its IT Nation Connect partner conference in Orlando, which concluded last Friday. They will sit within the company’s IT Nation Evolve organization, which until August was known as HTG. ConnectWise purchased HTG in January.
Set to launch in January, the new M&A groups will provide concrete guidance from IT Nation Evolve facilitators on issues to consider and steps to take when entering the marketplace for managed service practices.
“[We’ll] get in the weeds with them, help them figure out the answers to these kind of questions, and then make decisions on how to really change their behavior to increase business value, or if you’re on the buy side, look at the terms and different tools they can use to finance and enable them to grow,” said Arlin Sorensen, vice president of IT Nation Evolve and founder of HTG, in a conversation last week with ChannelPro.
There will be separate groups for buyers and sellers. Both will provide a mix of peer-to-peer insights and expert-led instruction. “We’ll have a lot of subject matter expertise in the room to help educate along that journey,” Sorensen says.
Unlike IT Nation Evolve’s traditional MSP peer groups, which operate indefinitely, the M&A groups will run for one year, during which they’ll meet face to face four times. ConnectWise plans to have the first set of groups up and running in time for its Q1 2019 meetings, which kick off on January 28th in Phoenix.
Creating M&A-specific groups is one element of a broader push by ConnectWise to help partners navigate a managed services market that’s heating up rapidly. Indeed, according to data from Service Leadership, an MSP consultancy based in Plano, Texas, some 70 percent of MSPs plan to participate in an M&A transaction within the next five years. According to Sorensen, higher acquisition costs for net new managed service customers is a major contributor to uptick in activity among would-be buyers.
“You can spend a boatload of money on marketing and salespeople and get nothing,” he observes. “We’re seeing that as companies get a little bigger, they’re choosing the M&A route.”
The new seller groups will teach MSPs contemplating an acquisition how to capitalize on that demand. Resetting their expectations about what their business is worth on the open market, notes Sorensen, is the first step in that process.
“A lot of owners think that if they just work hard, somebody is going to write a check someday,” he says. They’re liable to be disappointed, he continues, if they mistakenly believe that overall sales figures, rather than subscription income, is what drives valuations.
“Recurring revenue is what causes people to write checks,” Sorensen says.
Helping potential buyers and sellers find one another is another M&A-related goal for ConnectWise, which plans to host a series of in-person events for interested parties in 2019. An “M&A Deal Crawl” held at IT Nation Connect last week is the prototype for those meetings. About 100 partners, all of whom completed an application form in advance and signed a non-disclosure agreement, participated in that exercise. ConnectWise matched buyers and sellers based on their timeline, size, and profitability, among other variables. According to Sorensen, however, it does not plan to enter the M&A matchmaking business.
“We’re going to get in the community business, or leverage the community to bring people into networking kinds of opportunities so they can find each other,” he says.
To further support M&A participants, ConnectWise has rolled out a deferred billing program for its software. Announced on the first day of IT Nation Connect, the new offer allows any partner who buys an MSP that uses a competing vendor’s RMM, PSA, or quoting solution to put off payments on replacement software from ConnectWise for three months. Acquirers can defer billing for six months if they purchase a company that uses solutions from other suppliers in two of those product categories.
The goal, according to Sorensen, is to limit the financial pain companies involved in M&As can experience while integrating organizations with different cultures and policies as well as software. There is no expiration date on the offer at present. “[The] sales team may make a decision at some point in the future that we need to do that, but certainly at this point there is no end date,” Sorensen says.
The new VAR peer groups ConnectWise will launch in January are identical in size and format to its MSP groups, but dedicated to a different objective. While those older groups seek to help channel pros create and grow successful managed service practices, the new groups are designed to help traditional hardware and software resellers roll out subscription-priced services. ConnectWise CEO Arnie Bellini plainly articulated his belief that as-a-service offerings are the future of IT in his IT Nation Connect keynote address last Thursday.
“We believe that all of technology will be delivered as a service,” he said. “Not some of it. All of it.”
According to Sorensen, the target audience for the new groups is VARs who share that vision but are struggling to make the necessary transitions. “They’re trying to change because they feel like they need to make that change, and we want to really help those people get educated, give them some examples of companies that have made the transition and how they did it, and support them with what they need to be able to get there,” he says.
A lot of that effort will entail easing old school VARs into a service provider mindset, Sorensen continues.
“Service providers always start with services first. VARs always start with product first,” he says. “We want to kind of shift their thinking a little bit, and help them think through where they could make money and add value.”
Mastering new operational procedures will be high on the agenda for the VAR groups as well. “Their service delivery’s got to change, because it’s not a project that ends,” Sorensen observes. “It never ends. It’s month to month, so there’s a lot of those concepts that they’ve got to buy into and learn how to do.”
ConnectWise hopes to have half a dozen VAR peer groups operating by the end of 2019. “We’ll probably start slow,” Sorensen says.
Major distributors, including Ingram Micro Inc. and Tech Data Corp., are investing heavily in initiatives aimed at helping packaged product sellers adjust to changing IT market conditions as well.
