Host: Chris, so great to have you on our show today. Can you please just give us a background for what your role is at Ntiva, and maybe we take it from there.
Chris: Perfect. Well, great to be with you today, Madhur. Yeah, so Christopher and Carstens, I lead up the M&A and integration practice at Ntiva. I've been in the business now for almost four years, but prior to that, I've spent time in investment banking, management consulting, as well as principal investing. This is now my second stint leading and running a corporate development practice at a private equity-backed company.
Ntiva, in a nutshell, is a managed IT services provider that also serves cybersecurity solutions, cloud offerings, and the like to small and medium-sized businesses throughout the US. We've been around for almost 20 years and have grown quite steadily over those years. We've grown quite aggressively over the last seven as we embarked on a substantial acquisition strategy. We've now acquired 15 businesses and we are upwards of 800 employees across the U.S., spread across 10 markets. We are fortunate also to be backed by a prominent private equity family office organization. It's really been a wonderful partner for us, and I'm very happy to be here to talk a little bit about M&A. It's been something I've been doing for the entirety of my career, coming up on almost 20 years. So, I'm happy to dive into the questions here, Madhur, and provide a bit of perspective and advice, and maybe some expertise to the folks listening.
Host: Thanks, Chris. Today's topic for the listeners was really Chris's idea, and I thought it was very original and interesting. Most of the time, we spend thinking about due diligence and what buyers should be looking for in sellers. Chris was like, "Well, we should turn this around. We should really be thinking about what should sellers be asking buyers so that they go into this whole process with their eyes wide open." I thought that was fantastic. So, without further ado, Chris, if I try to break this complex question into some of its bigger and smaller pieces, what are some of the broad buckets of questions that sellers should be thinking about asking their buyers?
Chris: Yeah, I think it's really a unique opportunity when you're going through diligence. Even prior to that point, when you're thinking about who you'd want to partner up with as a buying company for the business that has been your lifeblood, your blood, sweat, and tears, many years of your life and time away from the family, you really want to try to find a partner, find that buyer that is going to best fit and hopefully exceed the needs and desires that you have through the transition of your business. So, trying to figure out things like the cultural fit of that organization, how they can seek to sort of empower and grow the overall business that they've acquired, but specifically also the people, your team, what are those opportunities for growth and development of those individuals, as well as thinking about what are the offerings, capabilities, and enhancements that could be provided to your client base.
I think those are all some of the questions you want to start to be thinking about because the unique thing about the MSP industry, in particular, is that there are a whole host of buyer types out there, and so there is no one single path that you need to take as a seller. It really gives you an opportunity to find that right niche partner for yourself that is very much on the same page as you, that you see as a vehicle and a means to take what you have built over the last many years and take it to brand new heights. And so, I think you're really trying to find that individual or that company that can help you achieve and hopefully even exceed your goals. But it does come with a little bit of need to do some research, some investigation, and some question-asking back towards the buyer. I think that's an important thing that you want to be comfortable doing so that you don't find yourself on the day after transaction close asking yourself the question, "What have I done here?" Because that's definitely where you don't want to find yourself.
Host: Yeah, that's a really important point. I mean, there are so many decisions that a seller has to make that affect valuation, the form in which they're going to receive that valuation, what role they're going to play inside the organization or outside the organization, and how does the operational and cultural fit matter for that? What is the impact of all those things on their customers as well as the employees who are going to continue to stay? So, it really matters so much. At Ntiva, do you provide founders and key employees the opportunity to choose different post-sale career paths?
Chris: Yeah, we do. And I think that's one of the unique aspects of partnering up with Ntiva. Just to take a small step back before answering the question, to expand on the previous topic for a moment, it's about trying to understand what you yourself would like to do through the transaction, what you envision to happen to your staff, your people, your team. What do you hope to have happen for your clients? And is there kind of that cultural fit with the organization that's buying? That leads into what are those options or opportunities for you as a seller coming into a business like Ntiva?
We've been fortunate enough, over the 15 acquisitions that we've done, to provide a range of transition solutions for sellers of the business. At one end of the spectrum are owners who decided, "Look, I'm ready to retire or I'm ready to go off to my next adventure. I'm ready to sit on my boat down in Florida, whatever it might be." And so, we can structure a transaction accordingly to meet those needs. There's another group of sellers who have come in, I'll put them in the middle of the spectrum, who have said, "Look, I've got a little bit more gas in my tank, but I also want to ensure that my people land well, that my clients land well, the integration goes smoothly." And so, I'm willing to devote the next three, six, twelve, up to twenty-four months to ensure that transition is seamless and then get off to whatever it is that you're intending to do next.
In the third bucket are those individuals who have a significantly longer time horizon in mind or have a particular area of passion that they're excited about focusing on, that they weren't able to do to quite the same degree when they're running a full organization. And so, we work with those sellers to determine and decide and divine what that specific area of expertise is, whether it's taking on a VCIO role or being in a new logo sales or account management or some technical area of focus like digital transformation or AI, or something along those lines, and saying, "Okay, let's get you focused in on that particular role." You'll obviously be helpful in supporting the transition and integration of the business into Ntiva. And then after a fairly short period of time, you're able to switch gears and really devote a hundred percent of your time to that new endeavor.
Sometimes we find that that ability to create that transition can bring a positive gust of wind, a breath of fresh air to that seller to kind of reinvigorate them and excite them on the go forward. I think the other thing that's also important to acknowledge here is that in thinking about the transaction that you're proposing or looking to go through, and maybe we'll get to this later on through the conversation, is what is the structure of the transaction and what will be the composition of the value and the dollars that you'll be getting? Will it be all in cash? Will it be a form of rollover equity? Is there an earn out? Is there some sort of seller's note involved? We at Ntiva find a tremendous amount of importance attributed to rollover equity as a means of determining the right measure of incentives and excitement for the go forward. You don't just have to be someone who's going to be in for the long haul in order to partake in something like that. It could be someone who's ready to go off to the new adventure straight away or after a short transition period or in for the long haul to be able to partake in rollover. It's one of those things that you really want to start asking and talking about ahead of time, certainly before you get to the point of an LOI, to be able to get to that correct structure for yourself as well as the buyer in order to help meet your financial goals along the way.
Host: Yeah, and what I think it also immediately means for sellers is that when they think about valuation, maybe they should think about valuation differently based on the form they're going to get that value in. If you're a younger seller who has the energy and the passion and is not ready to jump out, the rollover equity option probably has a lot more value for you than the all-cash option, right?
Chris: Yeah, I think that's right. I think that's one of the things that we've certainly looked at over the years, both at Ntiva as well as in my past experiences, is how do you determine and define the right measure of incentives? Part of that can be a function of what your time horizon is and what you want to do with yourself and with your career. I think one of the key things that you want to think about there is, is the team that you're partnering up with, the company that you're partnering up with, someone that you feel can really take the business to that next level. Can they be someone that helps you achieve your personal goals and aspirations?
Host: That's right. And a lot of that boils down to also the operational and cultural fit in the team itself. When you look at these three buckets of seller options, are there one or two pieces of advice that you would give to sellers to really examine before they take a step down any one of these three options?
Chris: Yes, it's a good question. And it is a very individual kind of answer, I think, because everyone is at a different stage in their life or their career or their business, quite frankly. Some folks could be just absolutely wiped out, and they're just tired, they're done, and they want to get out straight away. Or some folks are just so enthusiastic about taking it to the next level. So, I think it's really a very personal decision, but there are a couple of key things. One is, what is the overall financial consideration, and how do you achieve your goals through this transaction to be able to unlock the value and the potential that you've created over those years? Then secondly, what is your plan for yourself post-transaction? If you are ready to exit the business, what's your next plan? Is it to find something else that excites you or is it to take a step back, retire, and be done? If that's the case, you want to make sure that you're doing so at the right time and at the right valuation with the right structure in place. But if you do have that passion and energy left, then try to find what that next adventure looks like. It could be inside the same organization, it could be starting up something else outside of that organization, or a completely new avenue. So, I think it's just being honest with yourself and talking about that with your spouse or your family or whomever might be your close advisors and determine what your own personal goals are before you get too deep into any one of these paths.
Host: Yeah, that's really wise. In our previous conversation, you had mentioned that there are these different types of buyers in the MSP space, private equity being one of the primary ones that have driven a lot of this consolidation. There's been just such a frenzy of consolidation and activity. Could you talk a little bit about what makes private equity-backed firms different from other buyers? And what should sellers really be looking for when they assess private equity versus these other types of buyers?
Chris: Sure. Yeah. So, the market for managed IT services and managed cybersecurity services is extremely fragmented. It's one of the things that excites me about the space and continues to excite me about the space is that there are a wide variety of different types of buyers out there. I put them into a few different buckets. One bucket is what I'd call the investor category. You might think of private equity in there, but you can also think of family offices or maybe some strategic buyers that are looking to deploy capital into a business as an investor type category. Then you also have pure strategic buyers. So, other organizations that might be even larger in the MSP space, or maybe they are an adjacent category where they do some other sort of product or service offering but would like to enter the MSP space as a way to increase the value to their clients. Then you have the kind of entrepreneur-led organizations that are looking to pull together a bunch of smaller businesses and do some form of a roll-up or aggregation on their own. So, within those different categories, there are a wide variety of buyers.
When you think about a private equity-backed organization, the things that are most important to them that a seller should be thinking about and asking about are, what is their overall thesis for growth? What is their goal and objective? Is it to achieve some sort of growth number by a particular period of time? Are they looking to buy and hold forever? Are they looking to buy and sell within a few years? That can help you determine whether this is the right buyer for you based on what your goals are and what you want to do. Secondly, it's trying to figure out who that private equity-backed buyer is. I mean that by saying you might have the operating team, who are the individuals at the company managing and running the business day to day. Those folks are going to be who you interact with on a daily basis. Then you have the private equity team who are overseeing the investment, perhaps part of the board, setting some of the strategy and guidance on a go-forward basis. So, you want to make sure you get to know both teams, both groups of individuals through the process because you're going to be spending a lot of time with each of them in different respects.
What a private equity-backed buyer provides is really the resources to help take the business to the next level. Sometimes that can come in the form of additional financial capital, but it also can come in the form of the resources and the capability that they've been able to amass through their portfolio. They can say, "Look, we know how to grow these companies. We know how to go from $10 million to $50 million of revenue, $50 million to $100 million. We've done this before. We have the playbooks in place, the strategy in place to help support that." So, you want to find out, what is their track record of success and how can they help you get to where you want to go? That's one of the unique aspects of private equity backing and private equity partnership. You're not doing this on your own. You're really trying to do this in partnership with someone who has a vested interest in the success of the business.
The third thing is really just about that cultural fit again. What do you envision for yourself and for your team and for your people? Is this a partner that you want to be working with for the next many years? Do they align with your goals and vision? Do they align with your cultural principles of what you would like to achieve and how you run your business? I think that's one of the important things that you can really look at in differentiating amongst those buyers. Private equity-backed buyers are going to have different perspectives and different thoughts and different time horizons as well. It gives you a variety of options to choose from. Those are some of the key areas I'd be thinking about and looking for in trying to determine which type of buyer might be the best fit for you and your company.
Host: That is so interesting. As you were saying that, I was thinking about this one transaction that I was involved in where it was an MSP. The private equity firm was relatively new to the space, but they had really large plans and they had put together a bunch of smaller businesses. But in that case, they did not have an operating team in place. So, they were really relying on the seller to step in and become part of that broader operational team. I think that caught the seller by surprise a little bit because they thought the operating team already existed. In your experience, do you find a lot of cases where private equity buyers bring that operating team with them?
Chris: Yeah, it's a mixed bag. I think there's a lot of private equity organizations that will assemble that team up front. They'll have a designated CEO and a couple of key senior leaders who can be ready to plug and play day one. There's another set of private equity firms that will partner up with someone who already has that domain knowledge, domain expertise. Oftentimes, those folks might be in the wings, ready to come on board post-transaction. They may not be in place today, but they have them on a short list of folks who they'd like to bring in depending on the size and scale of the business. Perhaps it's an individual who maybe is running a smaller MSP themselves but would be great to take on a larger leadership role in a bigger organization.
Then you have that other category where they're looking for the seller to come on board, and in some cases, to really take on that senior leadership role. That's where some of that diligence upfront can be really important to know what you're getting yourself into. That can be a tremendous opportunity. I've seen it play out in multiple instances where that seller who has great industry knowledge, great expertise has been able to take that platform and grow it quite substantially with the backing of a private equity organization. But you don't want to get caught, as you said, surprised by that and all of a sudden find out, "Wait a second, I thought I was just continuing to run my own show or I thought I was off on my next adventure." It's important to know those things upfront. You can structure the right transaction, the right deal. It also presents a unique opportunity to say, if you do want to go off to that next adventure, maybe there's a way to structure it accordingly with the right incentives in place. Whether that be through an earn-out or a seller's note or rollover equity, you can still see some of that upside value that you're leaving behind but not be on the hook to have to run the day-to-day operations on a go-forward basis.
Host: I love that point. I think it's one of those things that sellers don't often think about, but the ability to stay in and see the upside of what you've worked so hard for over the years, while not having to run it, seems like the best of all possible worlds, right?
Chris: That's right. Yeah, and I've seen that play out in multiple instances. It also just comes down to being comfortable with the team that you're partnering with, whether that be the private equity organization or the operators or a combination of the two, to know that they're going to be good stewards of the business. If you can find that right balance of staying involved to some degree, it might be in an advisory role, it might be as a board seat, it might be some form of just kind of quarterly touchpoint type of thing. You don't have to be necessarily in the day-to-day weeds, but it does give you that ability to hopefully continue to see the fruits of your labor for many years to come.
Host: That's awesome. We touched on culture a few times in this conversation. It's one of those things that you can't really get in a checklist. But I don't think the question, "How is your culture?" really elicits the response. Can you think of a few ways that sellers can sort of get the true feel of the culture of a potential buyer and how they would work together on a going-forward basis?
Chris: Yeah, that's a great question. It's one of those where there is no one-size-fits-all, but I think there are a couple of key things. One is making sure that you're spending time with the organization on-site, both at your organization as well as at their organization. Sometimes you'll go through these processes where you'll have just a ton of Zoom calls or virtual meetings these days. That's a great way to check off the boxes, but if you can get together in person and meet with the team, the management team, even mid-level leaders, key executives, if you're in the technical space, the technical leads, and spend a day together, spend a couple of days together. It could be having them come to your office and just walk the floor and see how you operate and do business and how they interact with you and your team. Then vice versa, go to their headquarters or one of their offices and see how they interact with their team. Do they have a similar culture
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Chris: Secondly, make sure that you're being honest and transparent in those conversations. Everyone wants to put their best foot forward in these transactions, and that's great and wonderful. We all want to look our best and be our best. But if you can have some of those candid conversations early on to really get to the heart of some of the issues that you might be facing in your business—if you've got some areas that you're trying to work on or improve upon—talk to them about that. Ask them about areas that they might be looking to improve upon and see how they respond to that and how they handle that. If they can provide you with some examples of how they've done that with other businesses or within their own organization, it gives you a sense of how they operate, how they think about the business, how they think about problem-solving, and how they think about growth and development.
Thirdly, talk to other companies that they've acquired. If you can get some references and speak to some of the other owners that have gone through a similar process, even if they're not necessarily in your same geography, they can be anywhere in the world these days. If you can get some references to those owners and speak to them about what their experience has been like—what has been their overall interaction with the buyer? How have they found the transition to go? Have there been things that they were pleasantly surprised by? Have there been things that they were disappointed by? It can give you a sense of how the buyer operates and whether they're going to be a good fit for you. I think those are some of the key areas you can really focus on to try to get to the heart of that cultural dynamic and cultural fit.
Host: Yeah, and in those cases, you can also hear what they were surprised by and what they think they wouldn't have thought of on their own, so you can avoid those mistakes as well.
Chris: That's a great point. As you look at some of these transactions, you can really get a sense of not just how they operated through the process, but how they continue to operate on a go-forward basis. You can take those learnings and apply them to your own transaction and hopefully avoid some of those pitfalls or be prepared for some of the things that might come up along the way.
Host: Chris, I can't thank you enough for sharing all this information with our listeners. I think it's going to be so valuable as they think about their own transactions and their own planning. Thanks for being on the show today.
Chris: Absolutely. My pleasure. I'm happy to chat further if there are questions that come up from the group. I really enjoyed the conversation and I'm looking forward to hearing some of the feedback from your listeners.
Host: Thanks, Chris.
Chris: Absolutely. Thank you.