May 27, 2025 • 34 mins
In this episode of IAMCP Profiles in Partnership, hosts Anthony Carrano and Rudy Rodriguez sit down with Tim Mueller, M&A Managing Partner and Co-Founder of IT ExchangeNet, to unpack the fast-evolving world of mergers and acquisitions within the Microsoft Partner ecosystem.
With deep expertise and real-world examples, Tim explores how cloud services, AI advancements like Microsoft Copilot, and niche specializations such as cybersecurity are not just influencing—but accelerating—the valuation and attractiveness of IT service providers.
Throughout the conversation, Anthony, Rudy, and Tim break down:
- How AI and Cloud Services Are Reshaping M&A Strategy:
Learn how the enterprise push toward intelligent cloud solutions and AI-driven productivity is redefining value creation—and what that means for Microsoft partners eyeing growth or acquisition. - Why Recurring Revenue Is the New Gold Standard:
Explore the strategic pivot from project-based models to annual recurring revenue (ARR), and why buyers are rewarding cloud-forward firms with higher multiples and stronger deal terms. - The Human Factor in Tech M&A:
Tim shares how talent, certifications, and partner relationships (including Microsoft P2P health) significantly impact deal success, and why cultural alignment and employee expertise are just as important as the numbers. - Cybersecurity as a Must-Have, Not a Nice-to-Have:
Discover why managed security services are no longer optional—and how firms with MSSP capabilities are commanding premium valuations in today’s market. - Lessons from the Trenches:
Hear how real-world Microsoft partners—especially those under $10M in revenue—have gone from overwhelmed to acquisition-ready by embracing due diligence, modernizing operations, and strengthening customer and partner relationships.
Whether you’re a Microsoft partner preparing for your next growth phase, a private equity investor watching this space, or a leader focused on long-term strategy, this episode delivers actionable insights into what makes a business both resilient and acquisition-ready.
Don’t miss this in-depth episode on tech-focused M&A—and what it means for the future of the Microsoft Partner ecosystem.
Listener Links / Resources
International Association of Microsoft Channel Partners: https://www.iamcp.org
Guests:
Tim Mueller, M&A Managing Partner at IT ExchangeNet
Personal LinkedIn: Tim Mueller | LinkedIn
Company LinkedIn: IT ExchangeNet | LinkedIn
Website: IT ExchangeNet | Website
Show hosts:
Anthony Carrano LinkedIn, Managing Partner at Dunamis Marketing
Rudy Rodriguez LinkedIn, Managing Partner at Dunamis Marketing
Profiles in Partnership, brought to you by Dunamis Marketing
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Anthony Carrano (00:05):
Welcome to this episode of our podcast, Profiles
and Partnership, where we delveinto the ever evolving landscape
of M&A within the Microsoftpartner ecosystem. Joining us is
Tim Mueller, an industrytrailblazer whose insights into
high profile acquisitions andstrategic transformations are
unmatched. As AI gains momentumand cloud services redefine
(00:27):
enterprise modernization, Timbrings a wealth of expertise to
help us unpack the latesttrends, challenges, and
opportunities shaping the ITservices space. But before we
get started, let's ask ourselvesa few questions. How does a
cutting edge AI tool transformM&A and valuations?
And can niche specializationslike cybersecurity make or break
(00:49):
a deal? And what about the humanfactor, the certifications, the
partnerships, the customerrelationships? Today, we're not
just scratching the surface.We're diving deep into these
pivotal questions with TimMueller, M&A managing
partner and co founder of ITExchange Net, to understand how
technology and strategy convergeto drive success in
(01:09):
acquisitions. A littlebackground about IT Exchange
Net.
They are a leading M&Amarketplace exclusively for mid
market IT businesses, connectinga global network of over 85,000
qualified buyers withestablished IT enabled
companies. So whether you're aMicrosoft partner, a private
equity firm, or just fascinatedby the tech world, this episode
(01:32):
will keep you on the edge ofyour seat. And now to our
interview. Well, Tim, welcomeback to the podcast. We're
really excited to have you backon.
Tim Mueller (01:41):
Anthony and Rudy, it's good to see you guys again.
It's probably seven or eightmonths since we last spoke and I
really look forward to theseinteractions because it's a lot
of good information, not onlyabout the Microsoft ecosystem,
but also what's happening in thewhole IT services side. So
thanks for having me back.
Anthony Carrano (02:01):
Absolutely. And on that note, let's dive right
in. Let's talk about, you know,what are some recent high
profile M&A deals amongMicrosoft partners that you see
are setting trends? You know,what's changed since our last
conversation?
Tim Mueller (02:17):
Yeah, so I'd like to talk really about the
Navisite acquisition byAccenture. That was in 2024, but
we're now starting to feel theeffects of it because I think
there's a little bit of kind offollow on activity. If you guys
recall, Navisite, they had closeto 2,000 certifications, 1,500
(02:40):
employees, but of that, therewere more than 400 cloud
engineers. And what that doesfor a company like Accenture and
other larger acquisitions is itallows them to scale a little
bit more, both the applicationinfrastructure managed services.
That managed services meansrecurring revenue, but the cloud
(03:01):
engineers allows them to startdoing some skunk work projects
with AI to be able to useCopilot in a more effective way.
There's still a lot of questionmarks on how do we make money on
Copilot and the ability to nowcustomize the use of it for
their larger and even mid sizedmiddle market customers is
(03:23):
really important. So I reallylike what happened here with
that acquisition. I think whatit does is that there still is
very much an urgency tomodernize the enterprise. And
what we're seeing across theboard now is Accenture and
others like that are makingthose moves to fortify the
personnel to do that. It'salways great to get the revenue
(03:44):
that's associated with theM&A, but the people part of
this one, I think makes it muchdifferent.
So how that changes from thelast time we spoke is that AI in
particular continues to gainmore momentum, a lot less
vaporware of what it coulda,shoulda type things, and really
more about real worldapplications. The AI tools are
(04:07):
getting faster. They're gettingto be more productive. And I
think people are using it morethan helping them draft an
email. In the M&A space,we've got a lot of PE firms that
are taking spreadsheets anddropping them into AI tools to
then do comparisons andcontrasts between other
(04:27):
acquisition targets they have tosee whether or not there's good
accretive value in theirprojections. So the tools that
are coming with it in Accentureand those KPMG and others know
it.
Anthony Carrano (04:40):
That's fantastic. And aside from that,
have you seen any othersignificant shifts you know, in
the landscape? Some things havejust kinda changed in the last,
you know, you know, thepolitical realities aside, but
just in the business, you know,other, you know, aspects in the
business climate, have you seensome changes?
Tim Mueller (05:00):
Yeah. Like they say, all politics is local. So
and that does hit everybodyirrespective of voting and and
who's in office. There arealways some types of, you know,
follow on effect of politicaldecisions. But in the Microsoft
space in particular, you know,the compounded annual growth of
(05:22):
intelligent cloud revenue isreally what's starting to take
shape.
So that is the, you know, theidea of, again, there's the
recurring revenue that comeswith those intelligent cloud
revenue companies versus yourproductivity and business
application companies that aremuch, you know, growing much
slower. That's more like an 8%growth versus 14% to even 20%
(05:46):
for the cloud type of focus. Andreally what we're seeing is a
lot of these IT services,Microsoft channel partners that
on their website certainly arepromoting the cloud push, which
is the first step, but it's apivot that's gonna take a little
bit of time. You know, we get areally good bird's eye view into
(06:08):
the financials of thesepartners. For us, that benchmark
is 70% to 75% recurring revenue.
And that tells us that they haveachieved that pivot into being
more of a cloud applicationsprovider, as opposed to kind of
eat what you kill, projectbased, more of the type of
Microsoft channel partner of thedays gone by. And I think most
(06:30):
people are looking to make thatpivot. And the other one is, as
we see the movement of, youknow, Great Plains over to
Business Central, those GreatPlains customers and partners,
they've got not only dozens, buthundreds that, you know, see a
(06:52):
sunset coming up for support.And they know that even though
they've gotta move over to nowmonthly recurring revenue and
not those $17k to $20k upfronthits that they're able to take
of revenue. They do know longterm that's the way to go and
Microsoft is making them do it.
Anthony Carrano (07:08):
Mhmm. It's interesting that you bring
brought that up because I'm notsure if you're you're probably
not aware, but like, you know,we have different clients that
are, you know, Dynamics partnersand we're even, you know, not
only working with them on themigrate, you know, like
marketing to their GP customers,but also even to like their SL
and NAV customers who stillhaven't made kind of that
(07:29):
transition over to BusinessCentral. So that's interesting.
Tim Mueller (07:36):
Well, you know, on that one point though, Anthony,
it's funny because buyers atfirst blush say, boy, Great
Plains, we don't wanna touchthem. But the savvy ones say,
not only can we do the migrationover to Business Central, but
then can we hook them in andstart cross pollinating other
services and products? And thoseare the ones that I think are
(07:56):
gonna find a much greater jumpin valuation of the asset they
bought versus them saying, boy,they're just so way behind and
what can we do with them?
Anthony Carrano (08:06):
Well, talking about that, so how have you
seen, like, how is the focus onthings like AI and cloud
services impacted? Have you seenthose M&A valuations for
Microsoft partners?
Tim Mueller (08:19):
Still to be determined on the AI, only
because it's so nascent andthere isn't enough runway
behind. Most buyers wanna seehistoricals, you know, trailing
twelve months, what have we done24 to be able to mitigate the
trust, in what they're buying.They wanna make sure that they
(08:40):
don't have as much risk. Andthere just clearly isn't enough
AI revenue to be able to show.Now, for those that say, listen,
we've got five or sixproprietary projects in play and
how we customize AI inparticular with Copilot, those
are really starting to get theattention and now they're gonna
(09:02):
buy forward looking revenue forwhich they will give those
companies some credit, no doubt,but those that have already
gone, there are multipliersdifference in those that have
made the pivot to the cloud.
So some of the smaller midmarket and full mid market firms
that may have seen somewherebetween, you know, 6.25 and 7.75
(09:28):
times their adjusted EBITDA fora traditional Microsoft partner
that doesn't have any customerconcentration issues. They're
gonna lock in 9 to 11 to 12times their adjusted EBITDA if
they have now made pivot to morecloud and Azure revenue that
has, you know, annual recurringrevenue associated with it.
Anthony Carrano (09:48):
That's fantastic. And maybe I want to
kind of go back to something youhad mentioned, you know, at
beginning here of the show wherewe talked about, you know, with
AI, you know, gaining momentum,you know, the the urgency to
modernize the enterprise. Andyou there there was a phrase you
said how they're they're lookingat with fortifying with
(10:10):
personnel. Could you maybeunpack that a little bit?
Tim Mueller (10:13):
Yeah, I think if you look back historically,
every buyer will say, you know,the culture's got to fit and
we've got to make sure we havethe right people that we're
bringing in starting at the topdown, right? If the founder or
owner of the business doesn'tgel with the buyer, the founder
should find someone else, butthe buyer will typically. But
once they check that box andthey understand that there was
(10:36):
some forward thinking, thepersonalities that then beget
their culture kind of line up.Then they start looking at
certifications and they startreally digging in in their due
diligence, you know, thelongevity of their employees,
what their expertise might be,how many are making pivots to
having the newer certificationas a cloud provider. And then
(10:59):
that starts getting what we'reseeing is even more value from
the buyer.
Logos are great, no doubt aboutit. You don't wanna have
customer concentration issues,meaning if you've got more than
15% of your revenue coming fromone client, then you start
getting a little bit itchy on ifthat client leaves, what does
(11:21):
that mean to us? And we've gotsome clients with 25, 30
percent. We've got one clientthat has 100% revenue from one
client, one Wow. And, you know,it was just an offshoot of
another business that encouragedthem to keep building it.
But they were looking at it andthey weren't saying, listen,
don't give me more revenuebecause that's gonna mess up my
(11:43):
customer concentration. They'relike, bring it on, we'll take it
over. But that may not always bea bad thing. If it's backed up
by two, three year contractsthat are bulletproof and you've
got multiple decision makersbringing you business from that
client, it does help mitigatethe risk for the buyer, but
still they go in and theytypically do a little bit of a
(12:05):
discount if you've got some wetcustomer concentration issues,
but the contracts help. And thefact that their annual recurring
revenue that comes over and overagain helps them look away a
little bit on customerconcentration.
Yeah.
Anthony Carrano (12:20):
Well, what triggered kind of the question
for me was, you know, whenyou're talking about how the
focus on AI, impactingvaluations, but then if they're
you're seeing companies that aregaining some traction, they're
building up capabilities andskill set, but, you know, they
haven't fully quite figured outhow to, like or fully, you know,
(12:40):
monetize it to the extent. Like,how how much weight is given to
to one versus the other? Orbecause is it it can't simply I
mean, my I mean, you're theexpert, but I'm thinking it
can't simply just be apercentage about the about the
numbers.
Tim Mueller (12:55):
No. I think it's it's really about the adoption
rate, Anthony, that we'reseeing. So our rule of thumb is
if you can get customers between35%,40% adoption to AI tools,
and before that was migrating tothe cloud, and before that was
D365, and before that, you know,so you've got all these
(13:15):
iterations of Microsoft asthey've come to market. And when
you get 45%, you know, in thatrange that have adopted, then I
think you can look in the mirrorand say, this is now a primary
offering for us. And it's aslog.
It really is because there'seducation that goes along with
it. And there's trust that ifwe're gonna put this money into
(13:37):
it, is it secure? Is it gonna bereliable for us? And will it
make a difference to our bottomline? So those are all things
that we see as kind of thebuilding blocks for adoption.
I think if there's a combinationof the best foundation of
resources is almost equal to howyou sell it. The marketing
(13:59):
message, how convincing you are.I think those play equal weight
in when they go to their endline customers and say, we've
got some things that we thinkwe're gonna make you more
efficient and have higher bottomline profitability.
Anthony Carrano (14:14):
Well, that's great, Tim. And on that note,
let's talk a little bit about sohow do niche specialization such
as cybersecurity or advanceddata analytics influence M&A
and attractiveness for Microsoftpartners?
Tim Mueller (14:28):
Cybersecurity might be the two more seductive words
in our space because it's whitehot. The bad guys are getting
worse and getting moreaggressive in their attacks. And
so even the companies that neverthought about having
cybersecurity as a service topay for each month versus just
having some, you know,cybersecurity software installed
(14:49):
on their machines is creatingmuch greater opportunities. So
if you have some managedservices that you are, providing
to your customers, it's really afate of complete that you're
gonna have to have MSSPcapabilities as well. And so we
see that translating veryaggressively into the M and A
space because again, along withthat ARR, annual recurring
(15:13):
revenue that managed serviceproviders can bring to the
market, that MSSP, the managedservice security, brings the
same kind of annual recurringrevenue.
But the fact is you can chargemore for that service partially
because the talent is a lotharder to attract with the
expertise of cyber versus youmight have with your main
(15:36):
mainline IT services remoteworker. So that side of it is
that I think it's not a nice tohave for the Microsoft partners
that are, you know, offeringmanaged services. It's a need to
have or a must have to be ableto to not only have it in house.
Sometimes it's great to partnerwith somebody, as a third party
(15:57):
to bring in the cybersecurity,but you're messing around with
your margins and ultimately,you're not necessarily
overseeing the quality of thatservice. So we're seeing more
and more activity where, youknow, even the $10,000,000
Microsoft partner is bringing insome cybersecurity expertise.
Anthony Carrano (16:15):
Now I know, you know, you've you've talked a lot
about just the importance of,obviously, you know, the
stickiness with the customer,but at the same time, they're
not having, you know or she'salso, you know, focusing on, you
know, not being too weighted onyour customer concentration, you
know. Certain customersoccupying, you know, a certain
amount, you know, above theportfolio. What about let's talk
(16:37):
about, like, with partnerrelationships. Like, so how do,
you know, partner relationshipsinfluence the success of M&A
transactions, you know, amongMicrosoft partners or does it?
Tim Mueller (16:49):
You know, during what we call quality of
earnings, QOV, the buyers willalways want to dig in to see
what the relationship is. So forinstance, we've got someone
going into the deep part of duediligence right now where the
buyer will want to talk with thetop 10 customers that you have.
(17:12):
But they also want at least twocontacts at Microsoft to see
what that partner relationshipis and whether or not, you know,
our client is responsive toleads, how they're ranked among
other providers in the region,how well thought are they within
the Microsoft ecosystem. So therelationship that our clients,
(17:35):
the sellers have with Microsoft,or let's say they might be also
offering, you know, Salesforceor ServiceNow, you know, bite
your tongue, any of those, butmany do have multiple offerings.
Wanna be assured that when theybring them on in house,
oftentimes the buyers don't havea Microsoft presence at all.
(17:57):
So they've decided better tobuild to buy than build because
building, you know, it's messy.You leave a lot of skin on the
sidewalk, a lot of trial anderror, whereas you bring in a
strong Microsoft partner who'sgot a great relationship in
Redmond, and they have thecontacts even on a regional
basis to prove it, that helpsvaluation. And at the very
(18:18):
least, it substantiates for thebuyer that it's a solid business
from customers to employees allthe way to the relationship with
Microsoft.
Anthony Carrano (18:27):
That's fantastic. What about in terms
of just with, so I know youtouched on obviously the
relationship with Microsoft.What about with with their their
current, like their own partnerchannel, like their own P2P
situation? And, know, that canaffect, you know, their some of
their larger offerings. Doesthat get factored in?
Tim Mueller (18:48):
Yeah. No doubt. The next step is really what is P2P
health? You know, can you do ahealth check before you go to
market? Just to verify that ifit does get, you know, during
the quality of earnings check,are due diligence. If someone
asks, you know, set of partners,what are their thoughts? And
(19:09):
oftentimes it's disguised as acustomer survey. So a customer
satisfaction and partnersatisfaction survey. And we've
been hired by X to learn moreabout your relationship with
them. Well, do they follow-up?If in fact you have choice to
partner with others, will youchoose that one company over
(19:31):
another?
So they wanna really understandhow these Microsoft partners do
business throughout the entirefood chain, if you will, of
offerings or relationships. Thateven goes to the hosting. How do
you well do you work withhosting? How well do you follow
their direction on redundancyand backups?
(19:53):
Because there definitely aretechnology audits that take
place in our M&A processwhere they want to jump in and
see exactly if there is any kindof proprietary source code that
you're using for your SaaSoffering or for any kind of
proprietary platform you have.They wanna check to make sure
that it's not brittle and thatit's really strong. Or what are
(20:17):
your day to day technologyphilosophy or thesis? And can
that prove out in those QOV anddue diligence requests?
Anthony Carrano (20:27):
Now you mentioned about, you know,
during your quality of earnings,you know, process, how do you
assess the financial health of aMicrosoft partner before
recommending it for acquisition?
Tim Mueller (20:38):
So first and foremost, customer churn. Do
they have customers going backthree, five, seven, ten years
even that have stayed with themand continue to, you know, give
them more business. So we wannamake sure that there's
stability. Due diligence coversemployee stickiness. Do you have
the right people in place andhave they stayed there?
(21:00):
Not beyond their welcome,whereas some employees were
there now, there's Ed in thecorner, he's been there for
twenty five years and gotta makesure that Ed has a lot of
institutional memory and thathe's bringing value every day
versus he just didn't have theheart to make a change for that
position. So first and foremost,customer stickiness, no customer
(21:22):
concentration issues, employeestickiness. And then, you know,
what is that culture that we'retalking about? You know, if in
fact the buyer wants to come inand have a return to work
policy, how detrimental willthat be? I think most companies
now that have done the wholework from home issue are
(21:44):
starting to rethink and say, Iknow it's gonna cost a little
bit more to have brick andmortar again, but what kind of
credibility and evenproductivity do we have by
having people come in three daysa week?
And is the psychology of peopleworking in solitude every day,
all day there? Or is theproductivity decreasing because
(22:09):
there are lot more temptationsto throw a load of laundry in,
to start a crock pot for dinner,whatever it's gonna be, get up
from school, great quality oflife. But I think a lot of
employers are saying, wait, Ithink we could be better at
least by having a hybrid threedays in, two days back at home.
And some are going full Monty tosay, listen, come in five days
(22:30):
or you don't have a job. Youknow, we've got in Cleveland
where we are from home of theRock and Roll Hall of Fame.
Anthony Carrano (22:37):
And the Cavaliers who were expecting
great things this NBA playoffsseason.
Tim Mueller (22:43):
We hope they've won a championship by the time this
airs. But we're also the worldheadquarters for Sherwin
Williams Paint. And they've madeacquisitions of Glidden and
others, and they just built abrand new headquarter building,
40 some stories in DowntownCleveland. And they're saying,
want everybody to work five daysa week. We believe in our heart
(23:03):
of hearts that we are a bettercompany and that you are more
fulfilled as employees if youcome down.
And so we're gonna make it easy.We're right on the public
transit line. If you wanna takethe train in, if you wanna take
the bus in, we've got more thanenough parking and they're just
basically putting their footdown. And I do think that a lot
of tech companies, includingGoogle and Apple and others are
(23:27):
saying, you know what? We thinkwe're a better company by coming
into work.
So during due diligence, a lotof companies are saying, boy, if
we institute that return to workpolicy, are we buying a company
that we're gonna have massattrition and people leaving? Do
we wanna look at a company thathas people that are on the road
and they love being therebecause we're gonna probably
(23:49):
ramp them up and be on the roadmore? So that's all part of the
very delicate process of duediligence. It's quite frankly,
for our sellers is incrediblyfatiguing and it's just a grind,
but we prepare them for it. Andat the end, they're just
exhaling and glad that it'sdone.
Anthony Carrano (24:08):
I bet. I bet. Well, that's why you guys are a
leader in this space. Right? Andso what about just, I mean, can
you share maybe a personal casewhere your assessment and the
extensive due diligence of apartner's financial health led
to a successful acquisition?
I mean, I know we've got many,many, many over decades, but
(24:31):
maybe you can pick one. And I'llsay it maybe like around a
specifically, maybe a smallerpartner if they're doing, let's
say under $10,000,000 inrevenue.
Tim Mueller (24:41):
Yeah, Anthony, that's a really great question
because those smaller partnerstypically don't have the
financial mechanisms in place tofully satisfy the buyer's due
diligence. So consider this,you've got an owner operator
that also does some of theaccounting, might have a
controller, definitely has anexternal accountant, but now
(25:02):
they're being surrounded byfinancial analysts, accountants,
lawyers, due diligence experts,with these requests for data. So
you've got four to five peopleon a deal, maybe more, that are
all starving to analyze thisdata. Whereas the owner operator
(25:22):
is looking there with deer inthe headlights going, first and
foremost, I'm not even sure Icould do that report and give it
to you. And secondly, I've gotone person and we then counsel
them to say that time is neveron the side of the seller
because world events, customersgetting acquired, customers
saying they're going a differentdirection.
(25:43):
All these things can happenduring due diligence that might
make their revenue a little bitlumpy. So the big part of it is
how do these under $10,000,000companies keep up with the data
requests or the quality of datathat they're looking for. Buyers
on the other hand, they knowthat if they take a company that
is more of a lifestyle business,there could be a great value by
(26:06):
turning just a couple of knobsin billing, recording,
accounting, and marketing muscleto help build that business up.
So they know that there arethings they could do to make it
make improvements. But theseller can get very overwhelmed
by the kind of due diligencerequests there might be.
The one thing bar none that ifthey go through our process and
(26:30):
maybe something happens wherethey need to go on pause for six
or eight months, maybe they losta big customer, maybe there's a,
you know, event within theirlife, illness or whatever that
says, Hey, I just can't do thisright now. To a person, everyone
comes out and says, I had noidea about how to best run my
(26:50):
business. And so I went throughdue diligence and realized all
the different metrics I couldhave been looking at to improve
my business that now that I'vegone through it, I'm a better
business person and a betterowner. And if they go back to
market typically a year later,whatever it might be, they are
they have a much betterbusiness, but they're much
better prepared for our M&Aprocess.
Anthony Carrano (27:13):
So that that actually because I was thinking
when you when you startedsharing, you know, I was
thinking about, like, maybe canyou provide an example? And you
don't have to, you know, sharethe business's name, but where
they came in thinking they'vegot, you know, their their gold.
Right? But going through yourprocess that they realized that
(27:34):
they had a lot of things thatthey needed or some things that
needed to work on. And theneventually, you know, when they
came back, whether it's sixmonths, twelve months, you know,
two years back that they fixedthat and then, you know, it was
a very successful acquisition.
So somebody, you know, who'scoming in, I don't want to say,
like, arrogant or prideful, butjust very, very confident that
(27:56):
we've got a winner here. Butthey realize that, no, you've
you've got some stuff you needto need to work on. Can you
share maybe a case around that?
Tim Mueller (28:07):
Yeah. And we're never gonna say your baby's
ugly. So that ends conversationsreally fast. But but every one
of these guys have some warts onthem just because, you know,
they're trying to grow thebusiness and, you know, trying
to deliver and they're trying tohave employees that love where
(28:28):
they work. It is no small featto grow a $5,$7, $10,000,000
Microsoft practice.
The first million is probablythe hardest, and then it gets
really hard to go from seven to10. But we had one customer in
particular, one client that camein and they had the first time
through, we had a great cadencewith different buyers. We
(28:51):
attracted almost 70 differentbuyers for that Microsoft
partner. And by the way,Microsoft partners remain white
hot. So it's not a crazy thoughtto track fifty, sixty, seventy
buyers to an assignment orengagement that we go out.
So we had about 70. The realgoal was to try to bring it down
to a manageable number offifteen, eighteen buyers, and
(29:13):
then try to get five to sevenreally good offers. In the midst
of this, they lost their biggestcustomer. And this was after
they drew a lot of customerinterest. And that customer made
up almost 20% of their business.
Immediately, we had some buyersthat dropped off. Sorry, know,
if it starts here, where does itend? Or that was a customer that
(29:35):
we really valued highly, and I'msorry, we just can't go through
with it. Some others stayed inthe process and said, Hey, let's
get through it. The revenue thatyou're gonna lose with this, the
value that we were gonna placeon you, we're not gonna give it
a discount, but we're going topush it out further in your earn
out so that you could realizestill the replacement of that
(29:56):
customer's revenue.
So we're just gonna change thestructure, maybe have a little
bit less cash at close. Andmaybe on the back end, your team
combined with our marketing isable to replace that revenue,
you'll get full credit for it.But then as we moved into it,
they were very highly dependenton VMware for a lot of their
hosting and what they werereselling to their customers.
(30:19):
And so VMware then gets acquiredand they start basically pushing
away all their small businesscustomers with And all of a
sudden the contracts that weregiven to the final customer had
to all be reworked and many ofthem are going, wait a minute,
that's not the three yearcontract that we just signed.
(30:39):
And you've guaranteed that thepricing was going to freeze, not
knowing the VMware was going tobe sold.
So not only do they have to tryto get more revenue out of that
VMware component of theircontract, or look for another
provider that could do somethingas similar and as locked tight
as VMware. So we took them offthe market. We just said,
(31:01):
listen, with the 20% customeryou lost and now with VMware,
let's take it off the market,relock and load, try to get not
only a better solution for thepricing that VMware had given
you, but let's also replace that20% of revenue. And on top of
that, grow another 10 or 12%.And so our client looked at us
(31:24):
straight through the camera andgoes, we're probably two years
away from getting to where weneed to be.
Oh and that's about exactlywhere they were. And mind you,
the client was in their latesixties. So we're seeing this
silver tsunami that's happeningwhere, you know, the baby
boomers said, it's not that theydon't want to stay, but their
(31:47):
accountants and their estateplanners are saying, listen, you
have to sell. You don't have amanagement team below you that
could buy you out. You don'thave kids to take over the
business.
And if something happens to you,your estate will likely get a
lot less if you don't get asuccession plan and sell. So
he's working with the clock nowto that is both on the age, but
(32:09):
also all those other variableswe covered, but he did a great
job, found a different solutionfor the VMware, not only got
business development, havingreplaced it, but they also grew
on top of that. And then we tookthem to market and they finally
sold. It's a messy processoftentimes, but we look at them
(32:32):
all the time and say, we havemany millions of reasons why you
need to be heads down and justgrind through it because that is
oftentimes the most net worththat these guys have, women and
men as the ownership of thatbusiness. And when they sell,
you know, it's not foreign forus to get a text message on a
(32:53):
Friday night at sunset of theside rail of a deck with the
ocean behind it and a margaritasitting there with just the
words thanks from a client ofours that has fully now gotten
through their earnout andthey're free and they're sitting
there seaside enjoying theirretirement.
Anthony Carrano (33:14):
As we wrap up part one of this insightful
interview with Tim, we'vetraversed the complexities of
Microsoft partner m and a deals,explore the transformative power
of AI and cloud adoption, anduncovered the pivotal role of
relationships and nichespecializations in driving
valuations and success. Tim'sexpertise has illuminated the
(33:34):
ever shifting dynamics of thisspace, offering a clear eyed
view of both challenges andopportunities. But the
conversation doesn't end here.In part two, we'll delve even
deeper into the future of thesetrends, examining what lies
ahead for Microsoft partners andhow businesses can navigate the
evolving landscape. Trust us,you won't wanna miss what's
coming next.
(33:55):
Thank you for joining us todayand stay tuned for part two.
Until then, keep innovating,keep adapting, and as always,
stay curious. And remember,whether you're looking for new
customers, new markets, or newsolutions, IAMCP can help you
achieve your goals. To learnmore, the IAMCP website at
www.iamcp.org. See you soon.
Welcome to this episode of our podcast, Profiles
and Partnership, where we delveinto the ever evolving landscape
of M&A within the Microsoftpartner ecosystem. Joining us is
Tim Mueller, an industrytrailblazer whose insights into
high profile acquisitions andstrategic transformations are
unmatched. As AI gains momentumand cloud services redefine
(00:27):
enterprise modernization, Timbrings a wealth of expertise to
help us unpack the latesttrends, challenges, and
opportunities shaping the ITservices space. But before we
get started, let's ask ourselvesa few questions. How does a
cutting edge AI tool transformM&A and valuations?
And can niche specializationslike cybersecurity make or break
(00:49):
a deal? And what about the humanfactor, the certifications, the
partnerships, the customerrelationships? Today, we're not
just scratching the surface.We're diving deep into these
pivotal questions with TimMueller, M&A managing
partner and co founder of ITExchange Net, to understand how
technology and strategy convergeto drive success in
(01:09):
acquisitions. A littlebackground about IT Exchange
Net.
They are a leading M&Amarketplace exclusively for mid
market IT businesses, connectinga global network of over 85,000
qualified buyers withestablished IT enabled
companies. So whether you're aMicrosoft partner, a private
equity firm, or just fascinatedby the tech world, this episode
(01:32):
will keep you on the edge ofyour seat. And now to our
interview. Well, Tim, welcomeback to the podcast. We're
really excited to have you backon.
Tim Mueller (01:41):
Anthony and Rudy, it's good to see you guys again.
It's probably seven or eightmonths since we last spoke and I
really look forward to theseinteractions because it's a lot
of good information, not onlyabout the Microsoft ecosystem,
but also what's happening in thewhole IT services side. So
thanks for having me back.
Anthony Carrano (02:01):
Absolutely. And on that note, let's dive right
in. Let's talk about, you know,what are some recent high
profile M&A deals amongMicrosoft partners that you see
are setting trends? You know,what's changed since our last
conversation?
Tim Mueller (02:17):
Yeah, so I'd like to talk really about the
Navisite acquisition byAccenture. That was in 2024, but
we're now starting to feel theeffects of it because I think
there's a little bit of kind offollow on activity. If you guys
recall, Navisite, they had closeto 2,000 certifications, 1,500
(02:40):
employees, but of that, therewere more than 400 cloud
engineers. And what that doesfor a company like Accenture and
other larger acquisitions is itallows them to scale a little
bit more, both the applicationinfrastructure managed services.
That managed services meansrecurring revenue, but the cloud
(03:01):
engineers allows them to startdoing some skunk work projects
with AI to be able to useCopilot in a more effective way.
There's still a lot of questionmarks on how do we make money on
Copilot and the ability to nowcustomize the use of it for
their larger and even mid sizedmiddle market customers is
(03:23):
really important. So I reallylike what happened here with
that acquisition. I think whatit does is that there still is
very much an urgency tomodernize the enterprise. And
what we're seeing across theboard now is Accenture and
others like that are makingthose moves to fortify the
personnel to do that. It'salways great to get the revenue
(03:44):
that's associated with theM&A, but the people part of
this one, I think makes it muchdifferent.
So how that changes from thelast time we spoke is that AI in
particular continues to gainmore momentum, a lot less
vaporware of what it coulda,shoulda type things, and really
more about real worldapplications. The AI tools are
(04:07):
getting faster. They're gettingto be more productive. And I
think people are using it morethan helping them draft an
email. In the M&A space,we've got a lot of PE firms that
are taking spreadsheets anddropping them into AI tools to
then do comparisons andcontrasts between other
(04:27):
acquisition targets they have tosee whether or not there's good
accretive value in theirprojections. So the tools that
are coming with it in Accentureand those KPMG and others know
it.
Anthony Carrano (04:40):
That's fantastic. And aside from that,
have you seen any othersignificant shifts you know, in
the landscape? Some things havejust kinda changed in the last,
you know, you know, thepolitical realities aside, but
just in the business, you know,other, you know, aspects in the
business climate, have you seensome changes?
Tim Mueller (05:00):
Yeah. Like they say, all politics is local. So
and that does hit everybodyirrespective of voting and and
who's in office. There arealways some types of, you know,
follow on effect of politicaldecisions. But in the Microsoft
space in particular, you know,the compounded annual growth of
(05:22):
intelligent cloud revenue isreally what's starting to take
shape.
So that is the, you know, theidea of, again, there's the
recurring revenue that comeswith those intelligent cloud
revenue companies versus yourproductivity and business
application companies that aremuch, you know, growing much
slower. That's more like an 8%growth versus 14% to even 20%
(05:46):
for the cloud type of focus. Andreally what we're seeing is a
lot of these IT services,Microsoft channel partners that
on their website certainly arepromoting the cloud push, which
is the first step, but it's apivot that's gonna take a little
bit of time. You know, we get areally good bird's eye view into
(06:08):
the financials of thesepartners. For us, that benchmark
is 70% to 75% recurring revenue.
And that tells us that they haveachieved that pivot into being
more of a cloud applicationsprovider, as opposed to kind of
eat what you kill, projectbased, more of the type of
Microsoft channel partner of thedays gone by. And I think most
(06:30):
people are looking to make thatpivot. And the other one is, as
we see the movement of, youknow, Great Plains over to
Business Central, those GreatPlains customers and partners,
they've got not only dozens, buthundreds that, you know, see a
(06:52):
sunset coming up for support.And they know that even though
they've gotta move over to nowmonthly recurring revenue and
not those $17k to $20k upfronthits that they're able to take
of revenue. They do know longterm that's the way to go and
Microsoft is making them do it.
Anthony Carrano (07:08):
Mhmm. It's interesting that you bring
brought that up because I'm notsure if you're you're probably
not aware, but like, you know,we have different clients that
are, you know, Dynamics partnersand we're even, you know, not
only working with them on themigrate, you know, like
marketing to their GP customers,but also even to like their SL
and NAV customers who stillhaven't made kind of that
(07:29):
transition over to BusinessCentral. So that's interesting.
Tim Mueller (07:36):
Well, you know, on that one point though, Anthony,
it's funny because buyers atfirst blush say, boy, Great
Plains, we don't wanna touchthem. But the savvy ones say,
not only can we do the migrationover to Business Central, but
then can we hook them in andstart cross pollinating other
services and products? And thoseare the ones that I think are
(07:56):
gonna find a much greater jumpin valuation of the asset they
bought versus them saying, boy,they're just so way behind and
what can we do with them?
Anthony Carrano (08:06):
Well, talking about that, so how have you
seen, like, how is the focus onthings like AI and cloud
services impacted? Have you seenthose M&A valuations for
Microsoft partners?
Tim Mueller (08:19):
Still to be determined on the AI, only
because it's so nascent andthere isn't enough runway
behind. Most buyers wanna seehistoricals, you know, trailing
twelve months, what have we done24 to be able to mitigate the
trust, in what they're buying.They wanna make sure that they
(08:40):
don't have as much risk. Andthere just clearly isn't enough
AI revenue to be able to show.Now, for those that say, listen,
we've got five or sixproprietary projects in play and
how we customize AI inparticular with Copilot, those
are really starting to get theattention and now they're gonna
(09:02):
buy forward looking revenue forwhich they will give those
companies some credit, no doubt,but those that have already
gone, there are multipliersdifference in those that have
made the pivot to the cloud.
So some of the smaller midmarket and full mid market firms
that may have seen somewherebetween, you know, 6.25 and 7.75
(09:28):
times their adjusted EBITDA fora traditional Microsoft partner
that doesn't have any customerconcentration issues. They're
gonna lock in 9 to 11 to 12times their adjusted EBITDA if
they have now made pivot to morecloud and Azure revenue that
has, you know, annual recurringrevenue associated with it.
Anthony Carrano (09:48):
That's fantastic. And maybe I want to
kind of go back to something youhad mentioned, you know, at
beginning here of the show wherewe talked about, you know, with
AI, you know, gaining momentum,you know, the the urgency to
modernize the enterprise. Andyou there there was a phrase you
said how they're they're lookingat with fortifying with
(10:10):
personnel. Could you maybeunpack that a little bit?
Tim Mueller (10:13):
Yeah, I think if you look back historically,
every buyer will say, you know,the culture's got to fit and
we've got to make sure we havethe right people that we're
bringing in starting at the topdown, right? If the founder or
owner of the business doesn'tgel with the buyer, the founder
should find someone else, butthe buyer will typically. But
once they check that box andthey understand that there was
(10:36):
some forward thinking, thepersonalities that then beget
their culture kind of line up.Then they start looking at
certifications and they startreally digging in in their due
diligence, you know, thelongevity of their employees,
what their expertise might be,how many are making pivots to
having the newer certificationas a cloud provider. And then
(10:59):
that starts getting what we'reseeing is even more value from
the buyer.
Logos are great, no doubt aboutit. You don't wanna have
customer concentration issues,meaning if you've got more than
15% of your revenue coming fromone client, then you start
getting a little bit itchy on ifthat client leaves, what does
(11:21):
that mean to us? And we've gotsome clients with 25, 30
percent. We've got one clientthat has 100% revenue from one
client, one Wow. And, you know,it was just an offshoot of
another business that encouragedthem to keep building it.
But they were looking at it andthey weren't saying, listen,
don't give me more revenuebecause that's gonna mess up my
(11:43):
customer concentration. They'relike, bring it on, we'll take it
over. But that may not always bea bad thing. If it's backed up
by two, three year contractsthat are bulletproof and you've
got multiple decision makersbringing you business from that
client, it does help mitigatethe risk for the buyer, but
still they go in and theytypically do a little bit of a
(12:05):
discount if you've got some wetcustomer concentration issues,
but the contracts help. And thefact that their annual recurring
revenue that comes over and overagain helps them look away a
little bit on customerconcentration.
Yeah.
Anthony Carrano (12:20):
Well, what triggered kind of the question
for me was, you know, whenyou're talking about how the
focus on AI, impactingvaluations, but then if they're
you're seeing companies that aregaining some traction, they're
building up capabilities andskill set, but, you know, they
haven't fully quite figured outhow to, like or fully, you know,
(12:40):
monetize it to the extent. Like,how how much weight is given to
to one versus the other? Orbecause is it it can't simply I
mean, my I mean, you're theexpert, but I'm thinking it
can't simply just be apercentage about the about the
numbers.
Tim Mueller (12:55):
No. I think it's it's really about the adoption
rate, Anthony, that we'reseeing. So our rule of thumb is
if you can get customers between35%,40% adoption to AI tools,
and before that was migrating tothe cloud, and before that was
D365, and before that, you know,so you've got all these
(13:15):
iterations of Microsoft asthey've come to market. And when
you get 45%, you know, in thatrange that have adopted, then I
think you can look in the mirrorand say, this is now a primary
offering for us. And it's aslog.
It really is because there'seducation that goes along with
it. And there's trust that ifwe're gonna put this money into
(13:37):
it, is it secure? Is it gonna bereliable for us? And will it
make a difference to our bottomline? So those are all things
that we see as kind of thebuilding blocks for adoption.
I think if there's a combinationof the best foundation of
resources is almost equal to howyou sell it. The marketing
(13:59):
message, how convincing you are.I think those play equal weight
in when they go to their endline customers and say, we've
got some things that we thinkwe're gonna make you more
efficient and have higher bottomline profitability.
Anthony Carrano (14:14):
Well, that's great, Tim. And on that note,
let's talk a little bit about sohow do niche specialization such
as cybersecurity or advanceddata analytics influence M&A
and attractiveness for Microsoftpartners?
Tim Mueller (14:28):
Cybersecurity might be the two more seductive words
in our space because it's whitehot. The bad guys are getting
worse and getting moreaggressive in their attacks. And
so even the companies that neverthought about having
cybersecurity as a service topay for each month versus just
having some, you know,cybersecurity software installed
(14:49):
on their machines is creatingmuch greater opportunities. So
if you have some managedservices that you are, providing
to your customers, it's really afate of complete that you're
gonna have to have MSSPcapabilities as well. And so we
see that translating veryaggressively into the M and A
space because again, along withthat ARR, annual recurring
(15:13):
revenue that managed serviceproviders can bring to the
market, that MSSP, the managedservice security, brings the
same kind of annual recurringrevenue.
But the fact is you can chargemore for that service partially
because the talent is a lotharder to attract with the
expertise of cyber versus youmight have with your main
(15:36):
mainline IT services remoteworker. So that side of it is
that I think it's not a nice tohave for the Microsoft partners
that are, you know, offeringmanaged services. It's a need to
have or a must have to be ableto to not only have it in house.
Sometimes it's great to partnerwith somebody, as a third party
(15:57):
to bring in the cybersecurity,but you're messing around with
your margins and ultimately,you're not necessarily
overseeing the quality of thatservice. So we're seeing more
and more activity where, youknow, even the $10,000,000
Microsoft partner is bringing insome cybersecurity expertise.
Anthony Carrano (16:15):
Now I know, you know, you've you've talked a lot
about just the importance of,obviously, you know, the
stickiness with the customer,but at the same time, they're
not having, you know or she'salso, you know, focusing on, you
know, not being too weighted onyour customer concentration, you
know. Certain customersoccupying, you know, a certain
amount, you know, above theportfolio. What about let's talk
(16:37):
about, like, with partnerrelationships. Like, so how do,
you know, partner relationshipsinfluence the success of M&A
transactions, you know, amongMicrosoft partners or does it?
Tim Mueller (16:49):
You know, during what we call quality of
earnings, QOV, the buyers willalways want to dig in to see
what the relationship is. So forinstance, we've got someone
going into the deep part of duediligence right now where the
buyer will want to talk with thetop 10 customers that you have.
(17:12):
But they also want at least twocontacts at Microsoft to see
what that partner relationshipis and whether or not, you know,
our client is responsive toleads, how they're ranked among
other providers in the region,how well thought are they within
the Microsoft ecosystem. So therelationship that our clients,
(17:35):
the sellers have with Microsoft,or let's say they might be also
offering, you know, Salesforceor ServiceNow, you know, bite
your tongue, any of those, butmany do have multiple offerings.
Wanna be assured that when theybring them on in house,
oftentimes the buyers don't havea Microsoft presence at all.
(17:57):
So they've decided better tobuild to buy than build because
building, you know, it's messy.You leave a lot of skin on the
sidewalk, a lot of trial anderror, whereas you bring in a
strong Microsoft partner who'sgot a great relationship in
Redmond, and they have thecontacts even on a regional
basis to prove it, that helpsvaluation. And at the very
(18:18):
least, it substantiates for thebuyer that it's a solid business
from customers to employees allthe way to the relationship with
Microsoft.
Anthony Carrano (18:27):
That's fantastic. What about in terms
of just with, so I know youtouched on obviously the
relationship with Microsoft.What about with with their their
current, like their own partnerchannel, like their own P2P
situation? And, know, that canaffect, you know, their some of
their larger offerings. Doesthat get factored in?
Tim Mueller (18:48):
Yeah. No doubt. The next step is really what is P2P
health? You know, can you do ahealth check before you go to
market? Just to verify that ifit does get, you know, during
the quality of earnings check,are due diligence. If someone
asks, you know, set of partners,what are their thoughts? And
(19:09):
oftentimes it's disguised as acustomer survey. So a customer
satisfaction and partnersatisfaction survey. And we've
been hired by X to learn moreabout your relationship with
them. Well, do they follow-up?If in fact you have choice to
partner with others, will youchoose that one company over
(19:31):
another?
So they wanna really understandhow these Microsoft partners do
business throughout the entirefood chain, if you will, of
offerings or relationships. Thateven goes to the hosting. How do
you well do you work withhosting? How well do you follow
their direction on redundancyand backups?
(19:53):
Because there definitely aretechnology audits that take
place in our M&A processwhere they want to jump in and
see exactly if there is any kindof proprietary source code that
you're using for your SaaSoffering or for any kind of
proprietary platform you have.They wanna check to make sure
that it's not brittle and thatit's really strong. Or what are
(20:17):
your day to day technologyphilosophy or thesis? And can
that prove out in those QOV anddue diligence requests?
Anthony Carrano (20:27):
Now you mentioned about, you know,
during your quality of earnings,you know, process, how do you
assess the financial health of aMicrosoft partner before
recommending it for acquisition?
Tim Mueller (20:38):
So first and foremost, customer churn. Do
they have customers going backthree, five, seven, ten years
even that have stayed with themand continue to, you know, give
them more business. So we wannamake sure that there's
stability. Due diligence coversemployee stickiness. Do you have
the right people in place andhave they stayed there?
(21:00):
Not beyond their welcome,whereas some employees were
there now, there's Ed in thecorner, he's been there for
twenty five years and gotta makesure that Ed has a lot of
institutional memory and thathe's bringing value every day
versus he just didn't have theheart to make a change for that
position. So first and foremost,customer stickiness, no customer
(21:22):
concentration issues, employeestickiness. And then, you know,
what is that culture that we'retalking about? You know, if in
fact the buyer wants to come inand have a return to work
policy, how detrimental willthat be? I think most companies
now that have done the wholework from home issue are
(21:44):
starting to rethink and say, Iknow it's gonna cost a little
bit more to have brick andmortar again, but what kind of
credibility and evenproductivity do we have by
having people come in three daysa week?
And is the psychology of peopleworking in solitude every day,
all day there? Or is theproductivity decreasing because
(22:09):
there are lot more temptationsto throw a load of laundry in,
to start a crock pot for dinner,whatever it's gonna be, get up
from school, great quality oflife. But I think a lot of
employers are saying, wait, Ithink we could be better at
least by having a hybrid threedays in, two days back at home.
And some are going full Monty tosay, listen, come in five days
(22:30):
or you don't have a job. Youknow, we've got in Cleveland
where we are from home of theRock and Roll Hall of Fame.
Anthony Carrano (22:37):
And the Cavaliers who were expecting
great things this NBA playoffsseason.
Tim Mueller (22:43):
We hope they've won a championship by the time this
airs. But we're also the worldheadquarters for Sherwin
Williams Paint. And they've madeacquisitions of Glidden and
others, and they just built abrand new headquarter building,
40 some stories in DowntownCleveland. And they're saying,
want everybody to work five daysa week. We believe in our heart
(23:03):
of hearts that we are a bettercompany and that you are more
fulfilled as employees if youcome down.
And so we're gonna make it easy.We're right on the public
transit line. If you wanna takethe train in, if you wanna take
the bus in, we've got more thanenough parking and they're just
basically putting their footdown. And I do think that a lot
of tech companies, includingGoogle and Apple and others are
(23:27):
saying, you know what? We thinkwe're a better company by coming
into work.
So during due diligence, a lotof companies are saying, boy, if
we institute that return to workpolicy, are we buying a company
that we're gonna have massattrition and people leaving? Do
we wanna look at a company thathas people that are on the road
and they love being therebecause we're gonna probably
(23:49):
ramp them up and be on the roadmore? So that's all part of the
very delicate process of duediligence. It's quite frankly,
for our sellers is incrediblyfatiguing and it's just a grind,
but we prepare them for it. Andat the end, they're just
exhaling and glad that it'sdone.
Anthony Carrano (24:08):
I bet. I bet. Well, that's why you guys are a
leader in this space. Right? Andso what about just, I mean, can
you share maybe a personal casewhere your assessment and the
extensive due diligence of apartner's financial health led
to a successful acquisition?
I mean, I know we've got many,many, many over decades, but
(24:31):
maybe you can pick one. And I'llsay it maybe like around a
specifically, maybe a smallerpartner if they're doing, let's
say under $10,000,000 inrevenue.
Tim Mueller (24:41):
Yeah, Anthony, that's a really great question
because those smaller partnerstypically don't have the
financial mechanisms in place tofully satisfy the buyer's due
diligence. So consider this,you've got an owner operator
that also does some of theaccounting, might have a
controller, definitely has anexternal accountant, but now
(25:02):
they're being surrounded byfinancial analysts, accountants,
lawyers, due diligence experts,with these requests for data. So
you've got four to five peopleon a deal, maybe more, that are
all starving to analyze thisdata. Whereas the owner operator
(25:22):
is looking there with deer inthe headlights going, first and
foremost, I'm not even sure Icould do that report and give it
to you. And secondly, I've gotone person and we then counsel
them to say that time is neveron the side of the seller
because world events, customersgetting acquired, customers
saying they're going a differentdirection.
(25:43):
All these things can happenduring due diligence that might
make their revenue a little bitlumpy. So the big part of it is
how do these under $10,000,000companies keep up with the data
requests or the quality of datathat they're looking for. Buyers
on the other hand, they knowthat if they take a company that
is more of a lifestyle business,there could be a great value by
(26:06):
turning just a couple of knobsin billing, recording,
accounting, and marketing muscleto help build that business up.
So they know that there arethings they could do to make it
make improvements. But theseller can get very overwhelmed
by the kind of due diligencerequests there might be.
The one thing bar none that ifthey go through our process and
(26:30):
maybe something happens wherethey need to go on pause for six
or eight months, maybe they losta big customer, maybe there's a,
you know, event within theirlife, illness or whatever that
says, Hey, I just can't do thisright now. To a person, everyone
comes out and says, I had noidea about how to best run my
(26:50):
business. And so I went throughdue diligence and realized all
the different metrics I couldhave been looking at to improve
my business that now that I'vegone through it, I'm a better
business person and a betterowner. And if they go back to
market typically a year later,whatever it might be, they are
they have a much betterbusiness, but they're much
better prepared for our M&Aprocess.
Anthony Carrano (27:13):
So that that actually because I was thinking
when you when you startedsharing, you know, I was
thinking about, like, maybe canyou provide an example? And you
don't have to, you know, sharethe business's name, but where
they came in thinking they'vegot, you know, their their gold.
Right? But going through yourprocess that they realized that
(27:34):
they had a lot of things thatthey needed or some things that
needed to work on. And theneventually, you know, when they
came back, whether it's sixmonths, twelve months, you know,
two years back that they fixedthat and then, you know, it was
a very successful acquisition.
So somebody, you know, who'scoming in, I don't want to say,
like, arrogant or prideful, butjust very, very confident that
(27:56):
we've got a winner here. Butthey realize that, no, you've
you've got some stuff you needto need to work on. Can you
share maybe a case around that?
Tim Mueller (28:07):
Yeah. And we're never gonna say your baby's
ugly. So that ends conversationsreally fast. But but every one
of these guys have some warts onthem just because, you know,
they're trying to grow thebusiness and, you know, trying
to deliver and they're trying tohave employees that love where
(28:28):
they work. It is no small featto grow a $5,$7, $10,000,000
Microsoft practice.
The first million is probablythe hardest, and then it gets
really hard to go from seven to10. But we had one customer in
particular, one client that camein and they had the first time
through, we had a great cadencewith different buyers. We
(28:51):
attracted almost 70 differentbuyers for that Microsoft
partner. And by the way,Microsoft partners remain white
hot. So it's not a crazy thoughtto track fifty, sixty, seventy
buyers to an assignment orengagement that we go out.
So we had about 70. The realgoal was to try to bring it down
to a manageable number offifteen, eighteen buyers, and
(29:13):
then try to get five to sevenreally good offers. In the midst
of this, they lost their biggestcustomer. And this was after
they drew a lot of customerinterest. And that customer made
up almost 20% of their business.
Immediately, we had some buyersthat dropped off. Sorry, know,
if it starts here, where does itend? Or that was a customer that
(29:35):
we really valued highly, and I'msorry, we just can't go through
with it. Some others stayed inthe process and said, Hey, let's
get through it. The revenue thatyou're gonna lose with this, the
value that we were gonna placeon you, we're not gonna give it
a discount, but we're going topush it out further in your earn
out so that you could realizestill the replacement of that
(29:56):
customer's revenue.
So we're just gonna change thestructure, maybe have a little
bit less cash at close. Andmaybe on the back end, your team
combined with our marketing isable to replace that revenue,
you'll get full credit for it.But then as we moved into it,
they were very highly dependenton VMware for a lot of their
hosting and what they werereselling to their customers.
(30:19):
And so VMware then gets acquiredand they start basically pushing
away all their small businesscustomers with And all of a
sudden the contracts that weregiven to the final customer had
to all be reworked and many ofthem are going, wait a minute,
that's not the three yearcontract that we just signed.
(30:39):
And you've guaranteed that thepricing was going to freeze, not
knowing the VMware was going tobe sold.
So not only do they have to tryto get more revenue out of that
VMware component of theircontract, or look for another
provider that could do somethingas similar and as locked tight
as VMware. So we took them offthe market. We just said,
(31:01):
listen, with the 20% customeryou lost and now with VMware,
let's take it off the market,relock and load, try to get not
only a better solution for thepricing that VMware had given
you, but let's also replace that20% of revenue. And on top of
that, grow another 10 or 12%.And so our client looked at us
(31:24):
straight through the camera andgoes, we're probably two years
away from getting to where weneed to be.
Oh and that's about exactlywhere they were. And mind you,
the client was in their latesixties. So we're seeing this
silver tsunami that's happeningwhere, you know, the baby
boomers said, it's not that theydon't want to stay, but their
(31:47):
accountants and their estateplanners are saying, listen, you
have to sell. You don't have amanagement team below you that
could buy you out. You don'thave kids to take over the
business.
And if something happens to you,your estate will likely get a
lot less if you don't get asuccession plan and sell. So
he's working with the clock nowto that is both on the age, but
(32:09):
also all those other variableswe covered, but he did a great
job, found a different solutionfor the VMware, not only got
business development, havingreplaced it, but they also grew
on top of that. And then we tookthem to market and they finally
sold. It's a messy processoftentimes, but we look at them
(32:32):
all the time and say, we havemany millions of reasons why you
need to be heads down and justgrind through it because that is
oftentimes the most net worththat these guys have, women and
men as the ownership of thatbusiness. And when they sell,
you know, it's not foreign forus to get a text message on a
(32:53):
Friday night at sunset of theside rail of a deck with the
ocean behind it and a margaritasitting there with just the
words thanks from a client ofours that has fully now gotten
through their earnout andthey're free and they're sitting
there seaside enjoying theirretirement.
Anthony Carrano (33:14):
As we wrap up part one of this insightful
interview with Tim, we'vetraversed the complexities of
Microsoft partner m and a deals,explore the transformative power
of AI and cloud adoption, anduncovered the pivotal role of
relationships and nichespecializations in driving
valuations and success. Tim'sexpertise has illuminated the
(33:34):
ever shifting dynamics of thisspace, offering a clear eyed
view of both challenges andopportunities. But the
conversation doesn't end here.In part two, we'll delve even
deeper into the future of thesetrends, examining what lies
ahead for Microsoft partners andhow businesses can navigate the
evolving landscape. Trust us,you won't wanna miss what's
coming next.
(33:55):
Thank you for joining us todayand stay tuned for part two.
Until then, keep innovating,keep adapting, and as always,
stay curious. And remember,whether you're looking for new
customers, new markets, or newsolutions, IAMCP can help you
achieve your goals. To learnmore, the IAMCP website at
www.iamcp.org. See you soon.
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