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Evergreen Services Group: New deal to up MSP revenue to $40M

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MSP market M&A: Evergreen Services Group is acquiring SMB service providers that generate most of their business via monthly recurring revenue; more news from the week.
Evergreen Services Group, a holding company focused on purchasing managed service providers, is on the cusp of its fifth acquisition, a move that will bring the investor’s MSP revenue to more than $40 million.
The company, based in San Francisco, launched in 2017 as a spinoff of Alpine Investors, a private equity firm. Evergreen has received a $100 million equity commitment from Alpine to launch its acquisition campaign, which got underway seven months ago, according to Ramsey Sahyoun, head of M&A at Evergreen.
Evergreen’s investments include Executech, an MSP in the Salt Lake City area; Wolf Consulting and Jenlor, MSPs in greater Pittsburgh; and Interlaced LLC, an MSP in San Diego specializing in Apple environments.
Next up is an acquisition of an Austin, Texas, MSP that Evergreen Services Group expects to announce next week.

M&A in the MSP market

Evergreen’s acquisitions are in line with the general consolidation trend ongoing in the MSP market. A number of investment groups, including Fusion Agiletech, Converge Technology Partners and Great Hill Partners in conjunction with Reliam Inc., for example, are in the process of building IT services company platforms.
Sahyoun said Evergreen offers a different opportunity for MSPs in the M&A landscape. He said Evergreen purchases 100% of a company and generally pays in cash upfront, noting that other investors strike deals based on earn-outs or seller notes.
In addition, Evergreen takes a long-term view as it acquires companies, Sahyoun said.
“We are not going to smash a few MSPs together and sell in three or four years,” he said. “We are fortunate … to have a long-term financial backer behind this vision of ‘Let’s do this over many years and not just try to make a quick buck.'”
The long-range view enables Evergreen to invest in its acquired companies. Sahyoun said investments in sales and marketing, as well as in service delivery, sets up the acquired companies to have sustainable growth.
The companies Evergreen has acquired thus far will operate as stand-alone, independent platforms, he explained. Evergreen’s approach is to treat companies above the $1 million EBITDA threshold as platforms and those below that mark as add-on acquisitions that would be tucked into one of Evergreen’s platforms.
While Evergreen Services Group doesn’t plan to integrate the platform companies, there will be coordination among its holdings. Sahyoun said Evergreen recently started to bring executives from the companies together in a peer-group format in which they can share best practices and discuss business challenges. In addition, Evergreen provides a subject-matter expert directory and playbook on its website to help companies through such tasks as selecting an IaaS provider or collecting accounts receivable.

Evergreen Services Group is among the investment organizations looking to do deals in the MSP market.

Looking for SMB focus, MRR

Evergreen’s acquisition approach is to look for MSPs serving the small and medium-sized business market that have more than half of their business coming from monthly recurring revenue (MRR).
“That is what we value and what gets us excited about this industry,” Sahyoun said of MRR. “We look for companies that have a good, predictable stream of revenue.”
Customer satisfaction and high retention rates are also important factors in assessing acquisition candidates. To determine customer satisfaction, Evergreen Services Group goes through a process of talking to a subset of an acquisition candidate’s customers as part of its post-letter-of-intent due diligence.
Sahyoun said the company uses a third-party vendor to conduct the customer surveys, which yield such information as net promoter scores.

“We look for companies that have a good, predictable stream of revenue.”

– Ramsey Sahyoun, head of M&A, Evergreen Services Group
In general, Sahyoun suggested the recent uptick in acquisition activity in the MSP market signals a greater confidence in the companies following the MSP business model.
“The business has gotten fundamentally better over time,” he said, noting the shift from break-fix to MMR revenue. “That is a big part of what is driving investor interest.”