WHITEPAPER

A Groundbreaking Equity Partnership Opportunity for Business Owners

Oval Partners and New Charter Technologies is building a platform that empowers owners to run their business with a financial partner for further investment, and a team to join in leading the industry through the next round.

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The 5 Pillars of the Equity Partnership

The Oval Partners and New Charter Technologies business model is focused on building a caliber of business that the IT industry hasn’t yet seen. The strategy is revolutionary and changing the standard in which the industry operates.

1

Opportunistic

The platform partners with business owners who are not sellers but rather looking for an opportunity to continue what they’re doing and having a financial partner for further investment.
2

Collaborative

A team of business owners to partner with for the sharing of new ideas and industry best practices to accelerate their business forward.
3

Ambitious

The foundation of the model is centered around the idea that the Managed IT industry is a “people-business” requiring a local touch and should not be consolidated in order to build upon success and reach new growth and service delivery levels.
4

Inclusive

The partners who make up the New Charter banner are high growth and high margin businesses who share a common set of cultural and business objectives.
5

Growth

The owners are the Leadership team and are collaborating and strategizing in a way that has never been seen in the industry.

The Opportunity

As the industry changes at an unprecedented pace, Managed Service Providers (MSPs) must evolve more rapidly to keep up. Whether it is Security, Cloud, Data, or even AI, IOT, Vertical Markets, the industry has never seen the requirement to address new service paradigms so quickly. New Charter companies are not focusing on the challenge to keep up, but are focused on widening the lead. Best of breed MSPs and the benefits of scale and capital are differentiators.

The New Charter partnership allows business owners to take some risk out of the business, continue to maintain their name and culture, share best practices and resources with other business owners, and exit again as a larger, higher multiple business in the future.

The economic environment has been favorable for business owners in the managed services arena. EBITDA multiples have been growing and interest rates are low. As a result, transaction volume is growing. Many business owners are looking to sell their business. However, many others would like to take advantage of the market conditions for wealth diversification while also doing what they love, running their business.

It is with this idea that the Palo Alto based investors at Oval Partners and New Charter have crafted a strategy that is singularly unique in the industry. And with no lack of competition in the M&A space, Oval Partners successfully launched a partner – not sell – alternative that has brought nine companies into the partnership in its first twelve months of existence.

2050 N Loop W #200
Houston, Texas 77018
(713) 669-0965
info@penncomp.com

1120 – 551 Sherling Place
Port Coquitlam, BC, Canada V3B 0J6
(604) 425-3433
sales@activeco.com

310 Hemsted Dr.
Suite 300, Redding, CA 96002
(530) 248-1000
sales@apex.com

600 W 7th St Ste 550,
Los Angeles, CA 90017
(213) 261-3998
sales@dcgla.com

21 Gregory Drive, Suite 120
South Burlington, VT 05403, USA
(713) 669-0965
sales@tgvt.net

3801 E. Florida Ave
Denver CO 80210
(303) 757-0779
info@greystonetech.com

85 Bloomfield Avenue
Denville, NJ 07834
(973) 586-6590
info@olmec.com

531 N Schifferdecker Ave
Joplin, MO 64801
(417) 627-9878
info@strongholddata.com

705 Myles Standish Blvd
Taunton, MA 02780, USA
(508) 824-2260
WeLoveIT@BraverTechnology.com

All of these companies fall under the New Charter banner, led by industry veteran and CEO, Mitch Morgan. The partners are best-in-class managed service providers that make up the Leadership team that actively develops and executes the strategy. This is the perfect combination for capital partner, Oval Partners.

Oval was founded five years ago by two former senior partners from Golden Gate Capital on an evergreen basis so that founders are not forced to exit prematurely based on typical shorter private equity timeframes. Instead, Oval works with founders to build lasting value that is unconstrained by typical private equity investment limitations.

CEO,
New Charter Technologies, LLC

A Different Route

What sets Oval Partners apart from other M&A players is that in addition to providing an outlet for owners who are looking for some shareholder liquidity, its partnerships are structured so that owners can not only stay at the helm of their business, but they can participate equally in the New Charter holding company.

Here’s how it works

1

Oval Partners facilitates the valuation of the company. At the same time, the owner can then transfer a portion of the valuation, pretax, back into the New Charter holding company. The seller then becomes a shareholder within the group, owning a percentage of the overall pie, according to Dan Ruhl, a partner with Oval Partners. The ownership in New Charter is in the same class of shares and carries the same economics as the shares owned by Oval Partners. That way, the business owner can take full advantage of the equity appreciation that occurs from the organic growth, acquisition growth, multiple expansion, financial leverage, and best practices amongst the businesses.
2

With us, business owners have the opportunity to get some liquidity and partner in equity that can grow faster than the owner can grow if they were on their own. The portion they take out is taxed at capital gains, but the portion partnered with us is pretax. That way, the owner benefits from synergies, purchasing leverage, and has the ability to exit at a higher multiple.
3

The percentage of ownership in the holding company is calculated based on the Company valuation and the amount the owner decides to merge into New Charter. Quarterly, Oval Partners revalues the holding company, according to Ruhl. Prospective sellers are shown the valuation of the holding company to help them determine how much of their proceeds they would like to merge.
4

The combination of the full partnering option, coupled with the company retaining its identity following the transaction, together make the option unique. Since we’re at the beginning of the consolidation process, it’s a very attractive time for those business owners to consider partnering equity with New Charter.

Many of the owners in New Charter weren’t looking to sell their companies but saw an opportunity to diversify a portion of the equity they have built through their businesses over the years while augmenting their earning power and setting their firms up to flourish in the future, backed by the collective strength of the holding company.

Mitch Morgan & Dan RuhlNew Charter Technologies, LLC

Why the Managed Services Space

The industry is evolving at an accelerated pace. MSP owners are being challenged to offer a broader array of new technologies to meet the growing demands. The opportunity to align with other high caliber MSPs provides the ability to strategize and lead the charge to meet the industry’s short and long-term needs.

These businesses are growing quickly, and the opportunity to bring them together and be able to invest in bringing additional products and services to the customer base as technology continues to change within the industry definitely exists, and it’s easier to make those investments as a larger company than it is as a small business.

Mitch MorganCEO, New Charter Technologies, LLC

The managed services sector is growing and fragmented, with many owners that are not ready to retire.

Oval Partners was intrigued by the potential offered by the managed services channel, its siloed nature, and the potential to bring together strong businesses that can benefit from the economies of scale and other strengths offered by a single, large organization. The contractual nature of the managed services channel, and the lack of customer concentration, also appealed to Oval Partners, as did high customer retention rates. These cash flows generated over time have much lower volatility than most other industry sectors.

Dan RuhlPartner, Oval Group

In assessing a potential addition to the holding company, Oval Partners and New Charter seek new business partners that have a range of revenue from $4-20 million and healthy profit margins. New Charter is looking for business throughout the US and Canada.

Evaluating more than 100 companies per year, Oval Partners anticipates bringing six to eight companies annually to the platform, on average. Many of the candidates are filtered out early in the process, as they are not cultural or financial fits, or perhaps the prospective seller decides a different solution would be more ideal.

The Process to Join New Charter

The initial conversation is generally done by Morgan and Ruhl. Many of the partnerships are sourced through the internal network of New Charter business owners. Those that get past the initial screen possess the aforementioned qualities, such as contractual relationships, high customer retention, strong margins and growth. Oval Partners meet with the holding company members on a quarterly basis to discuss prospects that are under consideration. Should a member company feel strongly that a given company is not a good fit for the organization, that candidate is eliminated.

The next step entails Morgan and Ruhl meeting with the business owner, followed by a request for additional information. Once those hurdles have been cleared, Oval Partners and New Charter will draw up a letter of intent that includes the valuation and other pertinent deal variables. Once agreed upon, and the financial and legal due diligence are completed, Oval Partners and New Charter will issue the financials and documents for merging into the holding company.

We are investing in sales and marketing activities that have already brought a higher growth rate for our platform than they achieved prior to being part of New Charter. That, coupled with the fact that the platform of companies has a profitability level well above what is considered best-in-class. These factors are some of the reasons the combined valuation will increase significantly.

Mitch Morgan & Dan Ruhl

Vested Interest in Core

The partners at Oval have replicated their M&A formula across multiple industries. Unlike most private equity firms, Oval encourages its owners to invest in the holding company and benefit from the dramatic equity appreciation tied to ultimately exiting as an owner of a large nationwide company. One of the critical factors that sometimes gets lost in the conversation is the notion that each investor owns a piece of the entire holding company’s members firms, not a percentage of just their firm.

We bring our relationships, our track record with equity capital and with lenders to further invest in their organic growth, but also in future acquisitions. We value the leadership and the management teams of the businesses that we bring in. As a result, very little changes after we bring in a new partner, unless the management team or new partner wants those changes to occur. We bring the business owner the ability to gain partial liquidity today and to make more money in the future than they could on their own. We invest in organic growth and acquisitions, and the company keeps its name, culture, and heritage. We also stand out from other investors because our capital is permanent. Unlike a traditional private equity firm, where they have to return that capital to outside limited partners, we’re unconstrained in the term length. That means we can continue to compound our investments for our entrepreneurs over a longer timeframe, making more money for them and for us down the road. We exit when we want to exit.

Dan RuhlPartner, Oval Group

Room for Growth

Morgan and Ruhl predict that barring unforeseen variables that would impact the economy, the onslaught of M&A activity will continue to build during the next several years as MSPs seek to remain competitive by joining larger, well-fortified organizations that are positioned to make the necessary investments to grow. Oval Partners has used an increasing industry presence to grow awareness among companies seeking an alternative to conventional business sales, which has enabled New Charter to quickly bring together nine great companies.

While New Charter has a goal of growing in excess of 15% organically, its acquisition plan of $30 million to $50 million per year in revenue is quite a bit more aggressive.

While we’re still early in the process, now is a good time to get in. The time to maximize the reinvestment potential is early on in the consolidation. Once we get somebody’s attention and put these numbers up on a white board, more often than not, an owner is going to move forward with us.

Mitch Morgan & Dan Ruhl

For more information on Oval Partners’ strategy, email Dan Ruhl.