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.
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.
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.
New 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.
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