14 Jun Breaking Down the Successful Sale of Project Deacon
Making the decision to sell your business can be a really hard one, but with the right team by your side along the way and a focus on keeping your business running smoothly – the end result is worth it. Listen as we dive into breaking down the sale of a fantastic CSP client.
Project Deacon was an opportunity to acquire a growing, profitable cloud-hosting firm focused on the dental practice market with over 80% recurring revenue. They provide Cloud Desktop as a Service (DaaS), Managed Services, and IT Professional services – essentially a one stop technology shop of all the needs of growing dental services organizations. Revenue Rocket represented the firm as their sell-side M&A advisor. Project Deacon was a 15 year old firm with productized offerings, specialized in one area of technology to help dental organizations, 20-30% growth YoY
Let’s break down the sale of the business:
- Running your business before a sale
- Profitability
- Positioning your Business in the market (SVP)
- Gather the right data
- Due Diligence
- Trust your advisors
- Happy Buyers & Sellers!
If you’re considering an M&A process and don’t know where to start (or do know!) Revenue Rocket would love to help. We have helped hundreds of IT Services firms successfully sell their businesses. Reach out to learn more about our sell-side consulting services: info@revenuerocket.com
We have another recent episode on the successful sale of a $13 MSP we represented. Listen now >>
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EPISODE TRANSCRIPT:
Ryan Barnett 00:04
Hello, and welcome to this week’s Shoot the Moon podcast. This is a podcast exclusively for the owners and operators of IT service and tech enabled services businesses. It is presented by Revenue Rocket. I’m Ryan Barnett. And with me we have a partner, Revenue Rocket’s, Matt Lockhart. And we are really focused on M&A for technical services as well as developing strategies for growth. And part of the success that we have today, we’re going to talk about something that that is near and dear to his heart for the last few months is some success. So, Matt, welcome to the podcast.
Matt Lockhart 00:44
Good to be here. Good to be here. Good to be with you, Ryan. We’re we’re missing our founder, Mike this morning, who’s I believe getting ready for a very important grad party. So exciting for him.
Ryan Barnett 01:03
Yes, indeed. And congrats yourself on getting get another graduation your family as well. It is.
Matt Lockhart 01:10
Yeah, it is the season. And we’re we’re through two out of three graduations. So it’s other than, you know, our busyness here at Revenue Rocket that sort of taken up the rest of life these days, but very exciting. Yeah,
Ryan Barnett 01:30
absolutely. And one of the things we like to do is help founders achieve some of their vision. And part of that is getting a little bit more time back in their life, to enjoy those kinds of things. And I will say, for us, this was a great week, we had been promoting a project called Project Deacon. And yesterday was a big day and successful close on Project Deacon. And congrats to the team there. And congrats, Matt, to you led led through this deal. And today, I really want to break in and understand, you know, the anatomy of deal what, what does it take to be successful in M&A transaction when you’re selling your company? And, and I’m really excited to dig in. So Matt, I’m gonna start at tell us a little bit more about Project decon the project and the company itself.
Matt Lockhart 02:23
Sure, great, great story. And, to your point, you know, this is what we this is kind of what we live for day in and day out is helping our valued clients and, and achieving a, you know, sort of the close of a great chapter of their professional career. So excited and excited for our client, most of all, so project Deacon was an interesting story. This firm, is about 15 years old. And they started as a sort of call it a traditional managed services organization, in the southern region of the United States, had developed some success along those lines, primarily serving their, you know, local community, big firms based in in Houston. And as just part of their efforts in in going out and promoting and doing great service with their customers, they, they happen to pick up a couple of dental practices and and for those who haven’t tracked the dental marketplace, there’s interestingly been a fair amount of consolidation in the last decade. We’re single service, you know, dental service practice providers, tempted to go out and expand their practices organically and in organically. And subsequently, the rise of, of what is termed DSOs, or dental service organizations took hold our client very wisely anticipated some of this consolidation and they they made an acquisition of their own of a sort of a specialty provider to dental service organizations. And, and, and along those lines, built a strategy to develop, you know, some real specialty offerings in the dental service marketplace. Primarily, they built a specialized cloud. And, and think of this as a private or hybrid cloud environment in which these growing dental services organizations could feel very comfortable that all of their technology needs could be delivered upon, you know by our client. can project decon, both in the hosting of third party applications in the hosting of, you know, traditional back office applications. And then specially, you know, dental software capabilities. And so they, they really developed a sort of a one stop shop for all the needs of growing dental services organizations, and as you can imagine, you know, think about these large organizations, they don’t want to think about, you know, technology, the needs of individual practices, they want to drive consistency, through all of their practices, and in the use of the technology to enable, you know, bringing more people on bringing more services organizations on and, and that is, you know, really the specialty that our client developed over the course of, of really, you know, 5678 years. And, and, and we’re able to grow with their customers. And so that was sort of the the case in which they they came to us is, is they had a great deal of success, they followed one of the models that we preach day in and day out around verticalization still have their service capabilities aligned from their old MSP days. And we’re really at an inflection point in determining what to do next. Right. And that’s when they came to us and said, Well, you know, we understand that you guys have a have a, you know, revenue rocket has a rich history of, of helping companies grow through these inflection points. And, and really, what should we do? You know, should we continue to just focus on growing organically? Should we look at becoming an inquisitor? And, and growing in organically? And so that was the state in which they came to us?
Ryan Barnett 07:18
Yeah, it was a great, great summary. As you mentioned, it seemed like they took a page directly out of the revenue rocket playbook. They the first thing they looked at, and when we look at, we do a lot of growth strategy consulting for tech enabled services firms. And what I really found what project Deakin did well, they specialize. They weren’t just an MSP or, or a customer application developer or for something that they that they weren’t. They knew what they had within their managed offering and their cloud offering. And they specialized in in just one area of technology that could help those dental service organizations and dental offices out. That specialization was created, because they focused on on dental, so they picked a market, they understood the size of that they understood what they could go after, in a research a great scaling factor in that vertical market. A great a great point here is in the middle of our process, the deacon went to a trade show, that trade show was the trade show for dental service organizations. And it was such a great way to see how you can hone your marketing and your sales efforts in just being something very tight. And they executed really, really well. And the third part to there is they had a productize their offerings. So it wasn’t doing anything for anyone or bringing any anything to the dental service organizations. They came and wrapped together their their cloud and their complete cloud offering that to go after a very specific niche market. So really commendable to the team of what they had done. It helped them narrow their execution within sales and marketing. It helped narrow their expertise, it helped narrow with their, their partnership realm. And it helps it helps to really focus in on winning a market. And when you do that, you don’t have to be the biggest player in the in the walk. And you could start to grow and see exponential related growth. And it was really fun to see that that was realized in in the numbers. When they did that. They’re able to grow the company 20 to 30% year over year fairly easily. Without a lot of investment and sales teams. They are able to build profit margins. So these company ran it over 30% profit margins. So that’s something In that can, that is much easier done when you have that specialized verticalized and privatized approach. So, combination to the team coming back, Matt, you’d mentioned that came to us, looking at growth and acquisitive growth. What happened after the, as part of our process where we get to go through any thing we we look at the first few weeks are spent on readiness. And that looks at financial readiness for a transaction, and oftentimes, that that will help buy a ticket valuation of the company and seeing where they’re at. Matt, what happened, kind of in that readiness phase? Yeah,
Matt Lockhart 10:44
sure. Yeah, absolutely. So and, and, you know, we’ve got a pretty structured way in which we, in which we look at readiness and readiness is, is thought of in you know, first and foremost, you know, what are, what are potentials for growth, right, you know, looking at what’s what today, and as you mentioned, they were in a, in a very good position with their, you know, specialized verticalized productized capability. And so, you know, we looked at the evidence that they’re well positioned. They, they, they had done well, in this dental services, you know, marketplace, however, you know, there was a lot of a lot of continued room for growth within that marketplace, right, you know, in order for them to capture market share. And so, you know, the first thing that we did, obviously was look at the capabilities, see what to, you know, what gaps were in place, see, kind of what, what additionally would need to be done within the organization to continue that growth path, and, again, really capture more market share, within that specific vertical, one of the things that, you know, and this is pretty common, and, you know, IT services organizations was looking at, at the path to more predictable, you know, organic growth through the development of a growing and, and mature sales and marketing capability. And that is something that they, quite honestly, you know, and our client, and the founder would admit that that was something that they hadn’t tackled previously, they were able to grow because of that, you know, especially without investing a whole bunch in, in sales and marketing. And so, you know, we looked at and analyzed that option. And, you know, what, that, you know, sort of cost to return and timeframe would look at, like, and, you know, there’s a solid plan that could be executed upon through that. At the same time, you know, as looking at and evaluating the entirety of the business, as you mentioned, we always do a valuation and, and, you know, sort of look at the financial readiness of the organization. And, you know, when we did that, it was, it was quite honestly a bit of a, an eye opener to our client, in terms of the value that he had created to date within his business. And, and I think that and this is, I think, really important to note for all of our listeners, the additional value that he had created through specifically verticalization and virtualization with a an advanced cloud, you know, product and service capability. And, and so that was a bit of an eye opener. And so, he recognized that, you know, with that value, the opportunity to you know, proverbial bleep take some chips off the table, as well as looking at the appropriate partner. And, and sort of switching from being, you know, purely sort of internally or it organically and inorganically growth focused to looking at at selling a majority stake within the business, taking those chips off the table, but then having the opportunity to sell in and grow with the right partner. And so we walked through what that would look like and, you know, talked through our experience of of what that means to the founding partner as well as his his partners with In the business and his employees, and, and, you know, he made the decision that that was actually the most appropriate path. And, and, you know, this is, I think an important point that we counsel, all of our clients through is is, is really thinking, first and foremost, are you ready for a new chapter, and when he came to us, if that wasn’t front of mind, but you know, through the course of analyzing, you know, what it what it would take to take his organization to sort of the next stage versus and doing that, you know, with with all of his chips in the business, and the, you know, looking at the risk reward opportunity and the timeframe to do that, when we introduced him to the opportunity to think differently, you know, that was really appealing for him. So that decision was made. We, you know, we completed our our readiness and preparation for bringing Project Deacon to the market, we knew there would be a tremendous amount of interest because of this, you know, specialty that he had created. And obviously, there’s a fair amount of of action in the in the overall MSP marketplace. So we brought it to market, there was indeed, a tremendous amount of interest in Project Deacon, from financial, you know, buyers to strategic buyers. And, you know, sort of those in between. Because of that amount of interest in and I’ll say, anticipating that we ran a structured process, where the first month was really focused on validating that interest, aligning what appeared to be the very best strategic and cultural fits. Because without those, yeah, no, no, yeah, no, things are gonna fall down. And so we aligned the very top of those. And then, you know, ran into in that second month, ran through the structure of whittling down the interested parties through indications of interest, to a series of letters of intent, obviously drove additional, you know, strategic and cultural discussions and alignment and meetings along those lines. And then, finally, what appeared to be the very best fit came forward. And, and so we’re excited, not just to have our clients see a number of opportunities and potentials. And be able to explore what it would look like to sell into a strategic, you know, versus a pure financial. And what what came to bear was, this was sort of the best of both worlds, in which he found a strategic, growing nation wide MSP, that was backed by financial partners that had demonstrated that they had a good experience in acquiring firms of bringing those firms into the large organization of getting, you know, team members excited and integrated into those organizations. And really recognized the value for this national MSP to use project decon as a entree into a verticalized market approach. And so now, interestingly, they, this partner was also a former client of revenue rocket that we had helped execute some buy side opportunities and so, you know, a nod to the value of relationship and keeping you know, those good relationships going and, and doing a great job for you know, for clients and in helping them execute in a healthy and positive way. So, they they found that we were able to find and, and aligned the, I think what it was the very best cultural fit, strategic fit, and when those things are in place, the financial fit comes together very nicely for both parties.
Ryan Barnett 19:58
Absolutely, and this is That was a great opportunity for, for the seller to see a great number of buyers that weren’t proud of them. One of the things that made them really recognizable was that focus on the political market, you did have people that were turned off by that market. And sometimes qualifying out in the process is important. But those who are invested in this market and wanting to look for it as a future growth potential, really increase the number of potential buyers to the table and increased the options for finding the best strategic and cultural fit, paired with that financial debt. And I will say that, some really huge kudos to the seller. Once we found the the right buyer and an LOI was agreed upon, they did something that that is really really helps the process and that they dove right in into the due diligence. So when we had our first due diligence kickoff, and the first list was given right away, Project Deacon was at work providing the information that was requested. And really, it was smooth throughout the process and quickly communicating between buyer and seller, are our props to our due diligence team who reviewed the information that was sent and and ensuring there was no missteps in that information. And, and really, it was a great kind of all of yours, we’re clicking to provide the adequate information that the buyer needs to make sure that they’re they’re getting what they had the seller says they have well been through this process in a really smooth fashion. Matt, was there anything in this process, that it was a surprise or anything that you could give a future seller? Something to consider any? Any last minute things or any even throughout? Last minute, but surprises that made this interesting?
Matt Lockhart 22:08
Well, they’re all interesting, Ryan, as you know, we like to say that it’s one of the most unnatural acts and businesses is executing upon a merger and acquisition opportunity. And so, you know, I think that, because of that, and, you know, we quite honestly, I think, sometimes lose sight of of some of the unnaturalness that is just inherent, and in bringing one of these transactions through to close. So, you know, from the outside, you would say, Well, geez, were there, you know, some couple of twists and turns? And you’d say, well, sure, you know, but that, that’s, that’s always the case, I think that some of the things that we focused on was, you know, really and we try to do this is is is allowing the adviser to take lead on, you know, deal and due diligence functions, making it easy and clarifying, you know, for both sides, so that every buddy is looking at things, similarly, sort of looking at things from an apples to apples perspective, and then allowing the seller to more focus on building that bridge with the buyer and the buyers leadership teams, that was extremely important in this and always is, especially in those selling in opportunities. conveying the opportunity for our clients, senior leaders, and the opportunity for them in in, you know, immediately to really, you know, develop them and, and bring in this vertical approach. That was absolutely key and critical. The, the, you know, the no real surprises and quality of earnings. You know, I think that the only thing that we probably had an opportunity, and this is just good information for, you know, all parties, both buying and selling parties is is to be as early and timely in agreement. Right, and ensuring that those agreements are brought forward as, as early as possible. In this case, there was, you know, obviously standard purchase agreements, there was a rolling of equity in play. And so, you know, the opportunity in partnering agreements, employment agreements and the like, right, and so you know, all of those They are important. Obviously, they are consummating the deal, but the earlier that they can be surfaced, I think the better. But beyond that, you know, just just to great buyer. It’s a great seller. And so you know, just keeping people on track, I think is, when you find those scenarios, just making sure everybody is keeping their eye on the prize. And the prize isn’t the close of the transaction. The prize is really the opportunity for accelerated growth and value creation after the transaction.
Ryan Barnett 25:37
Yeah, that’s great. Matt, congrats to you, you were the lead in this project, I can, you deserve some kudos here. And thank you to the to everyone involved in this process. If you’re considering a sale, the there’s so much that goes into it. And it helps to have someone who’s been through the, through the trenches as you’re going through it. If I was to summarize a little bit of what we heard here today, a successful transaction has many, many components to it. It really, really started with the thought of really how you position yourself in the market, and product, you can do that. So well, targeting those dental service organizations and those dental offices. You saw that company build recurring revenue, which was attractive to buyers in new pair that with profitability. So that helps increase the number of buyers that are at the table. We heard that sometimes, you may start with one process in mind, but it through the right set of data and the right consideration. Sometimes strategic growth may be different than where you started. So maybe we see this oftentimes, sellers that turn into buyers, buyers that turn into seller, so taking the time to go through a readiness exercise to to understand the options available to you is critical to future success. We saw patients throughout the, throughout the process when it came through talking through many suitors. And so as we as we taught, we went through, we had many, many introduction calls many, many people that were interested in the deal, and the seller was responsive and calm and, and really great throughout that entire process. And so while still running the business, like it’s not for sale, I think they did a fantastic job. Fantastic job there. And then, um, through the due diligence process, again, letting data drive the process and, and keeping things smooth, trusting the advisors to get the deals done and pushing and shoving where need be, I think really helped out as well. In the end, we’ve got some very, very happy buyer and a very, very happy seller. And, and I think Matt have probably a happy advisor as well.
Matt Lockhart 28:15
Yeah, yeah, I think I as you’re talking, you know, the the greatest sort of personal and professional satisfaction that we get out of the business that we’re in is is seeing, you know, really excited buyers and sellers. I mean, it’s when we’re able to play a role, big role, small role, you know, medium role, whatever role that we get to play and in bringing those parties together. It’s, it’s great. And that’s, that’s what we that’s what we wake up every day, you know, charge and after. So, you know, excited and, and, you know, kudos to the entire Revenue Rocket team. While I have the opportunity to play a role in this, it doesn’t happen without the entire team. So we’re excited and and then you know, sort of water off a duck’s back and let’s go do it again. So with that, I’ll play Mike’s role here. And let’s tie a ribbon on it for ya know, another great Shoot the Moon podcast, and we’ll be excited to be back again next week with Mike in hand and graduations over with them and on the summer. So there we go. We’ll tie a ribbon on it. Thanks for being here and tune in next week.