Episode Summary

“We at 7 Mile Advisors are serving companies who are helping businesses procure and use technology in an effort to develop, capture, connect, move, store, compute, and secure data,” explains Founding Partner Tripp Davis, of his work at 7MA.

On this episode of Deal Talk with 7MA, host Ben Bruggeworth talks with 7MA colleagues Tripp Davis, a Founding Partner, and Tim Frye, a Managing Director, about the Managed Service Providers (MSPs) space and what they ultimately foresee happening in the market. Since 2008, 7MA has been an investment bank solely focused on technology services as a sector-centric bank. They drill into the marketplace in specific sub sectors to map landscapes and identify key businesses that they can serve via M&A, private capital raising, and strategic growth advice. The MSPs sector is an area in which 7MA spends a lot of time. Due to the velocity and complexity of technology environments, it’s a fast-growing market. Tripp and Tim share their own experiences and what they see as this market continues to evolve and businesses continue to get more specialized help from MSPs.

Tune in to hear Tripp and Tim talk about their experiences in MSPs, the future of M&As in this sector, and their dedication to vertical growth in the market. 

Featured on the Episode

Name: Tripp Davis
What he does: In addition to being one of the Founding Partners of 7 Mile Advisors, Tripp Davis has more than 20 years of investment banking and advisory experience.
Organization: 7 Mile Advisors
Words of wisdom: “As investment bankers, we are looking to help sellers, boards of directors, and private equity groups grow value and, ultimately, unlock that through a successful M&A transaction.”
Connect: LinkedIn  

Name: Tim Frye
What he does: Tim is a Managing Director at 7 Mile Advisors with a background in tech-enabled business services. He brings a wealth of industry experience and perspective to M&A transactions.
Organization: 7 Mile Advisors
Words of wisdom: “The core driver of value in all the processes that 7 Mile runs with MSPs has been recurring revenue. We have a saying, internally, that recurring revenue is king.”
Connect: LinkedIn  

Name: Ben Bruggeworth
What he does: Ben is a Vice President in Business Development at 7 Mile Advisors, and moderator of DealTalk with 7MA.
Organization: 7 Mile Advisors
Words of wisdom: “As we think about the buyer universe, we’ve seen a number of private equity groups across the country make investments within the MSP space.”
Connect: LinkedIn

Key Points

• Recurring revenue and expertise should be the focus. When conducting valuations, private equity buyers largely look at recurring revenue. In addition to recurring revenue and recurring revenue growth rates, 7MA has found that industry expertise is a significant driver of value as well. MSPs that focus on regulated industries or industries with compliance standards or regulatory requirements have a competitive advantage when stepping into the sales process. This has led to higher win rates, and the ability to increase or grow recurring revenue streams more quickly and more efficiently. 

• Multi-year contracts should remain the model. Tim predicts that if MSPs maintain a focus on the multi-year contracts as opposed to diluting value with month-to-month or even annual contracts, the multiples in this space should remain strong. 

• IT services have a lot to offer — more than you might think. Many private equity investors seem to be following the digital transformation in nearly all markets. Due to the multi-year contract nature of MSPs, the revenue visibility of IT investments provides stability, which ultimately creates a foundation for leverage and an asset-like business model. 

Episode Insights

[2:00] Specialty ops: 7MA has a team dedicated to regularly and constantly canvassing the market for up and coming managed service providers (MSPs) and businesses that have gained traction in the market.
[03:24] MSP breakdown: Tim and Tripp explain what it means to be an MSP, how it has evolved, and how companies look at that ecosystem.
[05:42] Standing out: In many businesses and markets, verticalization is the key to standing out amongst competitors. This is no different from MSPs in the tech sector.
[08:15] In the driver’s seat: The two 7MA employees discuss areas that really drive value, one of which has been recurring revenue.
[11:26] The buyer-verse: Through looking at recent trends, it’s evident that private equity groups across the country have found a home within IT services.
[14:00] Expectations: Tim and Tripp predict that, from an M&A perspective, private equity groups are going to remain excited about this MSP tech space.

Connect with 7 Mile Advisors

☑️ For a custom valuation assessment using 7 Mile’s five pillars of strategic value, contact Nic Anderko at nic.anderko@7mileadvisors.com
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Deal Talk with 7MA, a podcast by 7 Mile Advisors that aims to give listeners a look behind the curtain of the middle-market Mergers & Acquisitions world. 7 Mile Advisors is a middle-market M&A firm based out of Charlotte, NC that provides investment banking services and advice on mergers, acquisitions, and private capital transactions around the globe.