The latest private equity firm seeking to buy managed service provider businesses is Heckens & Wood, which made its first MSP purchase last July with the acquisition of Utah-based FortifyIT, and is talking to the press now about its strategy.
Founded last January by Thomas Heckens and Timothy Wood, Heckens & Wood plans to build a comprehensive managed IT services platform company and is primarily focused on MSPs with annual revenue of $1 million to $5 million, according to Wood, co-founder and managing partner of the PE firm. FortifyIT is the first step in that plan.
While the terms of the deal were not disclosed, Wood says FortifyIT, which was founded in 2016 and has about 1,000 seats under management, has annual revenue of “seven figures” with 15%-plus margin. FortifyIT Founder Mike Williams has stayed onboard as the firm’s chief operating officer, with Wood serving as CEO. All FortifyIT employees and clients continue to be supported, according to the company.
“We try to be founder friendly; that’s our goal,” says Wood, who notes he has been in the corporate finance/corporate operational world for about 25 years and has done a lot of private equity work in the last seven to 10 years.
Wood and Heckens also run Metris Global, a human performance and training company. They launched the PE firm because they “quickly realized that we had the same goals in terms of building other businesses either from scratch or through M&A,” says Wood.
Wood says he expects ongoing opportunity in the MSP industry. On the one hand, he says, smaller MSPs that may be struggling to compete with larger companies, have lost clients in this uncertain economy, or need short-term working capital may be open to acquisition. He also expects new, small MSPs to enter the market as former big tech employees put their severance packages to work. “They’re not all going to be MSPs, obviously, but you’re going to see some more organic builds just because of the opportunity with these layoffs, especially with these amazing severance packages that I’ve been reading about. …That’s enough to start your own business in some cases.”
He says the PE partners also have a vision to “add channels” to a rollup IT services platform, with the potential to spin out SaaS, software, and industry-specific services.
Heckens & Wood is just the latest PE to set its sights on MSPs. Asked what makes them different, Wood replies, “What I would say is we are a partner, not only in just getting a deal done, but we’re a partner for the platform. We’re a partner for your career as an individual. We want to see you succeed and I think that is a strong selling point. It’s not just getting a deal done and handing you a check and saying goodbye; that’s not what we want. We want to work with as many talented people as possible.”
Building A Better Business
The goal, he says, is not to cut management layers and do a quick sale in three to five years. “You always want to have a sale-minded goal, just from a valuation perspective,” he acknowledges, “but we’re looking to build a better business and build something through an organic process versus slash and burn.”
Williams chose Heckens & Wood after turning away “dozens” of interested buyers, he says. “Tim was one of those that when we were talking, he had the same vision for my customers and my employees that I did, which is a customer first, quality product, [at a] reasonable price,” Williams explains.
He also didn’t know initially if he would stay with a new company or leave, but he wanted his employees taken care of. “It was really important for me to find someone that was going to take care of the people that I put in place. I felt like I had a commitment to them. I built a fantastic team. I didn’t want to disrupt that. So far Tim has delivered on every promise he’s given.”
Wood says as they look to acquire other MSPs, Williams is “going to sign off on it, because first of all, Mike’s the first one and we’ve made commitments to him, and he needs to feel comfortable as well. So, we are not going to just start bringing companies in that don’t fit the plan.”
Williams says he likes the “vision” of Wood’s five-year plan. “It’s exciting to me to be able to bring that to fruition.”