[41] – Special Guest: Daniel Welling – Welling MSP

Welcome to PSA Impact, your podcast for all things PSA, RMM, and MSP, with your hosts, Rayanne Buccianico and Chris Tim. Learn how to get the most out of your PSA tool and manage your business by maximizing profitability and increasing efficiency within your MSP business. Let's listen in. Hi, everyone, and welcome to another episode of PSA Impact with your hosts, myself, Chris Tim, and my co-host, Rayanne Buccianico. Hey, Rayanne, how are you doing today?

I'm doing great today, Chris. How are things over there? Everything over here is good. The sun is shining. It's nice and warm, so life is looking good at the moment.

Well, that's good. And you guys are out and about these days, right? Yeah, exactly. Soon enough, we'll come over to the U.S. and we'll come and visit you in sunny Florida. So, Rayanne, what have we got on the agenda for today?

So today feels a little like deja vu. I believe we have a guest today, and his name is Daniel Welling. Hello, Daniel. Welcome, and thanks for joining us. Nice to meet you again.

Nice to meet you, too. Yes. Yeah, it does feel a little bit deja vu-y. Right? So, Chris, do you want to tell our listeners what's going on here?

Yeah, so I was just going to say, you might want to tell them why it's deja vu and why we have Daniel on again, because some idiots, and we won't mention any names, especially not my name, inadvertently deleted the previous recording that we did with Daniel. So we thought, you know, we actually said to Daniel it wasn't good enough the first time, so I deleted it, and he had to come back on and do it again and to consider that a practice run. So, yeah, so here he is. Hopefully this time I won't delete it, and if our listeners are hearing this whenever it goes out, then obviously it means I haven't deleted it, so hopefully all will be restored. And thanks for being such a great sport about it, Daniel, and coming on a second time.

So we really do appreciate your time and value it. Chris, tell us a little bit about you, you know, what you do, and, you know, how you ended up coming here. Thanks, Rianne. Yes, I guess, well, similar to Chris, a former MSP business owner turned consultant and general MSP advocate. Today, I guess I spend my time mentoring MSPs, doing some recruitment, and also involved in mergers and acquisitions.

So can I just zoom right in on to that mergers and acquisitions thing? So do you primarily work with buyers? Do you work with sellers? Do you kind of do both? Are you, you're not a broker, right?

You're doing consulting? Tell us a little bit about that, because that's kind of a hot market right now, I would think. It's certainly getting hotter. I think the, what I call the tail end of the market, the sort of million or so pound businesses and below, that there's definitely more activity and an ever increasing maturity and awareness of M&A. I think also probably funded by PE money starting to filter down as the larger players have been acquired already.

So they have to look smaller and smaller each time. So the market's sort of collapsing in on itself. But to answer your first part of your question, predominantly I'm working with buyers. And the work that I'm doing there is around deal generation and obviously helping to get deals across the line to heads of term stage, then assisting or being available during due diligence. And then I tend to come back into the process when it's time to do the integration and helping actually make the acquisition a success after the completion.

So you're not only, you know, working through the sale process or the purchasing process since you work with buyers primarily, but you're actually helping to integrate the two companies together and, you know, and make sure that everything is kind of cohesive and, you know, you onboard all of the accounts and things like that. So you really kind of get in there and roll up your sleeves? Absolutely. And, you know, for me, the process really begins when I'm having those initial exploratory conversations with the target suspect sellers to start to understand how my buyer would integrate their business and, you know, not just their customers, but their staff and, you know, sizing up the activities involved in aligning contracts and pricing and general ways of working. It's fair also to say I do work with sellers as part of my mentoring activity as, you know, most MSPs are on some kind of cycle.

So, you know, even if they're not actively on the market looking for a buyer, the planning and the work we do together is getting them ready to either not have to be in their business every day or ultimately, you know, once they've reached that stage, they potentially want to want to sell the asset and fully step away. I might want to ask a little bit more about that in the coming minutes, but Chris, I know that you've got some questions too. Yeah. So, Dan, and I hear this all the time, and I'm sure people ask you the same thing as they're going through this process is, you know, how to how to value their MSP businesses. And so I just wondered, what is your process for doing this?

Really good question. And there's a lot of answers out there and a lot of opinions. And it is, to be honest, it is all opinion, as they say, beauty is in the eye of the beholder. However, there is some science to it, and I tend to use four valuation methods and then triangulate effectively a medium or fair number, which is normally somewhere in the middle. Very briefly, the four methods are annual contracted services times one, gross profit of annual contracted services times two, which is normally the same answer as one, because we would expect a 50% gross profit in a typical MSP service.

The third is the good old EBITDA multiple. And EBITDA crucially has to be adjusted either positively or negatively for active or inactive owners' remuneration before you can apply a multiple. And then at multiple level, you know, you'll hear people in the market talk anywhere really between three and seven or eight for MSPs. And lots of things affect that, such as size and other factors. But if you assume roughly five times, you'd not be you'd not be far away from the market.

And then the final method I use is a business plan, which kind of links to what I was saying earlier about how we're really understanding how the seller's business will be integrated into the buyer's business. So we're looking margin contribution, staffing, how they're going to how they're going to fit together, and therefore building a business plan for my customer, my buyer customer that can then can then truly see what the what the contribution is going to be over the initial two years. And that tends to tends to stretch the other numbers if they're if they're a bit shallow for for whatever reason. Okay, can I just go back to so one of the things that you had said a few minutes ago, you were you were talking about helping sellers get their businesses ready for sale. They may not be actively looking to sell.

So what sort of what sort of things do you focus on? Are you focusing on the financials? Are you focusing on SOPs, service desk service delivery? What sort of things do you really jump in and help them improve before they go for sale? Good question.

And I think probably the answer is all of the above. To explain my background, I'm I describe myself as a salesperson by trade. So my, my history into MSP ownership was from the commercial side. I believe I've become a closet technician in, in, in transacting and learning enough about the industry we work in, in order to probably probably sell it and support support the customer journey. But, but yeah, I tend to be focused more on anything that's commercial and that in that includes processes, efficiencies, strategies and tactics.

But most of my client journeys begin with the creation of a business plan, assuming that the my customer doesn't already have one. And that business plan will will force discussion and decision on all of the areas that you that you mentioned and plenty more. But yeah, so yeah, how are we going to build a profitable business that that in time doesn't need the owner to be operationally involved. And yeah, there's there's lots of things that need to happen to reach that point. You've got to got to get lots of customers, you've got to get profitable business, you've got to get great staff, the staff have got to be well organized and drilled and consistent in their delivery.

So we're seeing a whole a whole list of things need to be need to be tackled in in order and with the appropriate balance when when the time is right. Dan, so you're talking about, you know, all these kind of things. And what I wanted to ask is in terms of the, you know, the role that the PSA has in the value of the business, and do you see when, you know, when people are looking to sell those people that are either using a PSA and have it set up correctly versus those that are not using a PSA, are those businesses kind of valued a lot higher? Or what are you sort of seeing in that? I think there's two two elements to to the PSA and the role it the role it plays.

The first would be in terms of building a profitable business, you're going to you're going to struggle to to scale the business without a PSA and an assessor manages profitability. And so so that's that's part of every day up and up until the time of exit. Then when you come to looking at exit, the buyer is going to ask some very awkward questions like how many customers you've got and what do they spend and how has that changed over time and how many seats are you getting for that amount of revenue and so on and so forth. And therefore, you've got to be able to extract that information with with relative ease because of course it changes and fluctuates all of the time. And so a good PSA well configured with with good reporting will be worth its weight in gold when you know when you're engaging in those conversations with a buyer.

So two areas the PSA has has great, great impact. So basically, so you are offering am I allowed to call you an M&A coach or should I call you something else? My question, I think, is, is when when does an MSP go, you know, seek you out for your services and what are some of the biggest challenges that they face in their business, you know, which prompted the call or the initial contact with, you know, an M&A coach or consultant? First of all, I've been called a lot worse than an M&A coach. So that would be a win as far as I'm concerned.

In terms of when when people seek me out, normally it's because they've they've got a pain that they've been unable to resolve. And I think I think that's true of when most MSPs would identify there being some kind of trigger point with, you know, their customers as to why they're then interested in talking to them moving moving perhaps from their their incumbent MSP. But the same is true here. It may well be that they've been grappling with a particular topic or challenge and just not making headroom. Some just have what's referred to in M&A circles as shareholder fatigue insofar as, you know, they've been working at it a long time and it's just they're just not making the progress they wanted to.

So almost out of desperation, you might say, they're like, you know, please come and tell me what's going wrong. And yes, so all sorts of different origination points. But equally, you know, I've worked with startup MSPs that are from the industry that that have an understanding of MSP life, but but not from a leadership perspective. I have I have others that are totally fresh into the MSP world. Maybe they've got some sort of technical IT background already.

I have well established MSPs that have already pushed their way through, you know, a couple of those those glass ceilings on the on the journey, you know, the hundred thousand, the two fifty, the five hundred, the one million, the two million, you know, they're all they're all humps that you have to really push through. And, you know, some have been successful and others unsuccessful in in those different stages. So, yeah, all sorts of different backgrounds and situations, which, to be fair, is part of the reason why I actually really enjoy the mentoring role because of the diversity and every every day, every hour is a different topic. And Dan, just another question. Obviously, we have, you know, our listeners are worldwide and I know you're based in the UK as as am I.

So is your the service that you offer? Is that only on a UK base? Do you deal with people outside? And if so, which countries do you deal with? Good question.

And I guess an important point, you know, let's caveat everything that I say or all of my opinions as being UK based. So I'll often talk in pounds rather than dollars. So which is which is the give the potential giveaway. But yeah, I mean, my my client base up to now has been predominantly based in in the UK, in Great Britain. However, I'm very fortunate to have clients in the in the Channel Islands.

And in fact, I've one client in Gibraltar. So I am gradually working towards worldwide domination. I also as part of the journey in my own MSP, I actually had a I call it my Wild West experience of founding and managing for a short time an MSP branch in Southern California. So I've got some experience in the US market, but not a regular recent traveler to to that part of the world. I can imagine you with a cowboy hat on and kind of riding your horse through Southern California and yeah, yeah, yeah.

Desperate, Dan. So since the start of the pandemic, I mean, are you seeing like an uptick or a downtick in mergers and acquisitions and people looking to exit or purchase? So what's the climate been like over the last year and a half? Yeah, interesting. I think around April time, deals that were in progress naturally had had a bit of a bit of fluctuation as I think most of the world just didn't know what to expect.

So but very quickly, people woke up the next day and realized that their their customers were still paying them and asking them to do things. And the world was still turning, although in a different fashion. And I think what's happened in equal measure is some people have come to the market as a result of realizing, actually, you know what? Life is too short. I don't want to do this anymore.

And others have come away from the market on the basis that they see a fantastic opportunity to to grow their business organically with the accelerated digital transformation that the pandemic undoubtedly hastened. So, you know, I'd say in equal measure, people have come come and gone away from the market. As I mentioned earlier, there's there has been a trend towards a general increase in M&A over really over the last couple of years, I would say, where the PE fuelled deals at the larger end of the market are becoming fewer and fewer in availability. And so naturally, buyers, professional buyers at the top end of the market are having to look lower down. And and I think that's, you know, that's creating a bit of an uptick in the in the tail of the of the market.

But I think it's natural ebbs and flows of the an open marketplace. And I'm sure, you know, you'll be able to see different trends in the future. But but, yeah, I'd say I'd say it's continuing to be to be strong. Oh, well, that was a very, very interesting conversation. And I'm sure it's a very, very hot topic at the moment.

A lot of talk around M&A. And I know I could ask him questions for hours, you know, based around M&A and valuations. And I dabble a bit in that area myself. And it was interesting to hear your your four pronged valuation approach, because I have a very similar one. Actually, three out of the four valuation methods, you know, are exactly the same as yours.

I have a different fourth. But anyway, I could go on for hours, but this is a PSA podcast. Absolutely. And and I can talk to Daniel for hours about this. And we've you know, we've spoken at length many times about about M&A and about his coaching services and all that kind of stuff.

So very interesting guy to to to talk to. So, Dan, if anyone wanted to, you know, find out a little bit more about you, if they want to reach out to you, what's the best way for people to do that? People will find me on LinkedIn, Daniel Wellin, and the website is WellinMSP.com and plenty, plenty of call to action opportunities to to mail me or message me. Always, always happy to to have a chat and talk to talk to new people. Absolutely.

And if not one of those, then I know you kind of hang around a lot of trade shows and events and what have you. You know, somebody can reach out to you at one of those as well. Absolutely. If you're if you're looking for me, I try the bar first and then work out from there. And and if not, then come and ask me or because we'll be propping the bar up and ask if we can reach out to Daniel and and yeah, we'll we'll point you in the right direction.

If it's if it's your round, I'll be there. Absolutely. Well, I will absolutely make sure that I buy both of you a beer when when we get to that bar. So anyway, thank you so much for joining us today. It was really fascinating just, you know, learning more about the whole M&A process, especially in the UK, because, you know, I don't get over there that often.

So I find that completely fascinating. And do you find a lot of do you get a lot of your leads from LinkedIn or where do they come from? Yeah, I think most of my new inquiries would actually come from LinkedIn, although that said, you know, I'm I'm active in other forums and groups, so I suspect it's more that people look me up on LinkedIn, having perhaps heard a podcast elsewhere. But yeah, I think like like any any good MSP marketing campaign, you've got to be where your customers are. So so yeah, so certainly I'm you know, I've got a pretty wide connection of MSPs and people in the in the community on LinkedIn and any MSP looking to do new business prospecting, really powerful tool.

And you know, the fact it's free is it's just even better. So so, yeah, everyone should be on should be on LinkedIn and active using it. Absolutely. So, yeah, I mean, this is a great conversation again, as always, Daniel. And really all that's left for me to say, and I know Rayanne's expecting me to kind of do my little my little usual jingle, but I'm just going to say this.

And the other thing that's left for me to say, Rayanne, is your PSA is the key to your MSP success. So go out and make an impact on your world today. Thanks, Chris. Thank you so much, Daniel. Thanks, Daniel, again.

And I promise I won't delete it this time. Thank you for joining us today on PSA Impact. We hope you've learned something and that you'll join us next time when we answer new questions posed by our listeners.