If you run an MSP, you’re either looking to acquire smaller MSPs or you’re getting inquiries almost every day from those larger MSPs. Evergreen is one of those mega MSPs doing the acquiring with around 150 MSPs under management through its Lyra Technology Group subsidiary.
I spoke with Evergreen M&A advisor Craig Fulton about the portfolio company’s strategy for recruiting, buying and managing acquired MSPs. Evergreen founder and CEO Jeff Totten will join an MSP Summit panel Billion-Dollar Bets: How Mega MSPs Are Rewriting the Rules of Scale Sept. 28 in Orlando, FL, along with New Charter CEO Peter Melby, Titan co-founder Saurin Patel and Shield CEO Jim Siders.
Can you quickly outline your M&A history?
Fulton: We closed out last year with 141 MSP acquisitions. We're active in Australia, New Zealand, Canada, the U.S., Ireland, and the U.K. We've got great momentum this year and we're looking to expand into the Benelux region and the Nordics. We feel our mission — being a permanent home for businesses and leaders — really resonates across a lot of different countries and cultures, so it's feeling like a good fit there.
What do you look for when you buy an MSP?
Fulton: There are some key metrics: top-line revenue, EBITDA, how much of the revenue is contracted recurring revenue, and client concentration — what the top five clients make up of total revenue. That matters. But every acquirer has a different strategy. Ours isn't built around a customer vertical or a geography. Beyond the numbers, we're looking for culture, mature leadership, a strong customer base with good retention and satisfaction, and happy employees. The qualitative stuff matters just as much as the quantitative stuff — a business is people. The last thing you need is everyone leaving right after you acquire it.
Do you standardize your MSPs’ technology and products?
Fulton: No. Where we really help an acquired business is through pre-negotiated contracts and elevated benefits with large vendors. We can move them onto those relationships and get them access to things they couldn't get on their own. For example: you join Evergreen, and now you're a top-tier partner with Pax8 or ConnectWise, with access to white-glove services and higher margins. And if an MSP we acquire doesn’t love a certain tool in their stack, we show them how our other portfolio companies are using a given tool to drive profitability and growth, and let them decide. We don't force anything on them. It's all about influence, not mandates. Nobody calls you and says “You need to switch to this." It's more like, "Hey, I noticed things have been tough — here's how another company we own solved that." When you force someone, it doesn't go well.
How do you find and recruit MSPs?
Fulton: There's a whole sourcing team, and that's my role. I call myself the free safety — everyone else has assigned territories, and I'm the guy who's everywhere: Benelux, Australia, Canada, wherever. Every MSP owner will tell you they've got 20 emails in their inbox this week from buyers. So how do you break through that? Familiarity helps — the team will come to me and say, "Craig's your first connection on LinkedIn," or "I know that guy, I can get him on the phone." A lot of the time the response I get is, "I get emails like this all the time, but it's you, so I'll take the call." It's been helpful.
Craig Fulton
How many of your acquisitions haven’t worked out?
Fulton: Honestly, none. We've never had a "shouldn't have bought that" moment. The good thing is, the moment one looks like it's heading in the wrong direction, it's all hands on deck. Each region has a regional CEO covering 10 to 15 MSPs, and they're engaging monthly with the leader of each company — whether that's the founder or someone else. There are early warning indicators, and we've also got a layer in Lyra. Evergreen sits above Lyra, and Lyra sits above all the individual MSPs. Lyra is made up of former operators and former employees of our own businesses — people who've actually done it. If an MSP in, say, Chicago needs help, that team steps in. Thankfully, we haven't had a "dud" yet.
Credit really goes to Lyra — they've dialed in how to organically grow these businesses.
How did Lyra come about?
Fulton: It's a company we created to manage the MSPs. At the end of the day, you don't want Evergreen managing MSPs directly. We're the finance people managing the investment. You want people who've actually grown MSPs working with MSPs. For example, Dave Lazor is one of our regional CEOs in the Midwest — he sold us Lazerpoint in Cleveland. Greg Zolkos is regional CEO in the South — he sold us Atlas in Tampa. These are proven leaders we elevate into those roles.
When an MSP leader who built something great becomes a regional CEO, other leaders are far more likely to listen and respect them than they would an investor who's never run a business like theirs.
What red flags make you steer away from an MSP?
Fulton: A few big ones. First, high customer concentration. If one client makes up more than 20% of revenue, that client is probably an acquisition target too — and if they get acquired, that revenue could walk.
Another is over-reliance on the founder. It's fine if a founder still handles sales and account management — that's natural. But if they're doing a little bit of everything — sales, ops, service tickets — that's risky. Once they get a big payout, the natural instinct is often to check out within a couple months, and then we're scrambling to backfill, sometimes with two or three hires, which hurts EBITDA and growth.
Also, legacy technology exposure. A large data center with heavy capex, or a revenue mix that leans heavily on copy/print/phone rather than managed services, makes us anxious. Those technologies have a shaky future.
What percentage of leaders stay on after acquisition?
Fulton: Roughly a third to 40%. Occasionally — maybe one in 10 — the owner has already stepped back from day-to-day and has a successor in place. When they sell, there's no real transition needed. Typically, though, it's a six-to-12-month transition. About half want to transition out, and half say they're staying on indefinitely — though we're flexible either way. Sometimes I'll gently nudge someone. I can tell when they're ready to get their family time back, and I'm not afraid to say, "You should probably go." Three months after an acquisition there will be change no matter what, so it's better to be honest about it.
What tips do you have for MSP owners who are thinking about selling?
Fulton: Industry data shows the average MSP sells for six-to-eight times EBITDA. If someone asks me how to maximize their multiple, the first question is “Do you have someone whose only job is bringing in new business? Nothing else.” That's a growth engine we don't have to build ourselves post-acquisition, and we'll pay a premium for that. Low client concentration with the top client under 5% of revenue is a premium. High recurring revenue — 75% or more — is a premium number. It's less about the absolute EBITDA and more about the quality of that EBITDA, and that's what determines whether you land at 6x or 8x. And since every acquirer is different, sellers should get to know several buyers and lean into the ones that impress them most.
How long does the process usually take once an owner says they're ready?
Fulton: About three months from start to finish: analyze the P&L, meet to discuss deal structure, put together an offer, negotiate, and sign — that's roughly the first month. Then it's about two more months from signing to close. We've done this enough times that it's a well-oiled process, and it shows up in our seller surveys. People are often surprised at how smooth it was. It's like selling a house: nothing's worse than a buyer picking it apart during the process. We try to avoid that. What I'm proudest of is when someone says the final number matched the original offer. I hear a lot of horror stories about offers changing during diligence. We try hard to keep that consistent — we spend that first month making sure we're confident in the EBITDA number before we ever present an offer, specifically so it doesn't have to change later.
Have you considered acquiring other kinds of partners — tech advisors, consultancies that work with MSPs?
Fulton: Not really our focus. We model ourselves after Berkshire Hathaway — invest in what you know. With Lyra, we feel like we've really figured out how to grow IT service companies, so that's where we invest. That said, there are different flavors of IT services companies — managed service providers, ERP application service providers, government IT contractors — and we're always watching for other categories worth investing in, as long as it stays within IT services. No software plays.