IT Services Businesses . . . Making IT Happen

As digital technology continues to transform how business is done, the complexity and speed of change of information technology continues to increase dramatically. Many businesses realize it is impractical to invest in the required personnel and training needed to stay on top of the latest developments in technology. As a result, many companies, particularly small- and medium-sized businesses, rely on third-party service providers to install and manage their IT systems. The growing demand for these outsourced services has caught the attention of both strategic acquirers and private equity funds looking to capture share of a burgeoning global market, which is expected to grow at an average annual rate of 8.4% and reach $1.1 trillion by 2025.(1)

Supply and Demand for the M&A Market

Acquirer and investor demand for IT Services businesses remains high due to several factors:

  • The large, fragmented and expanding industry offers an opportunity to grow both organically and through acquisitions;
  • Demand for IT services is steadily increasing;
  • Recurring revenue generated by managed services’ contracts provides visibility into future performance; and
  • For strategic acquirers, consolidation provides an opportunity to expand technical and sales resources, access new customers and broaden service offerings.

In addition to being extremely large, the IT Services industry is highly fragmented with over 450,000 industry participants, which provides an ample supply of potential sellers for the M&A market. Industry fragmentation is expected to increase slightly as new participants regularly enter the market and often specialize in recently introduced technologies and emerging trends. However, the number of new entrants will be offset by large industry players continuing to acquire successful niche companies to add new capabilities and customers.

Key Value Drivers

Although both the supply of IT Services businesses and the demand from acquirers remains robust, not all sellers are created equal. Numerous attributes combine to determine how much a business is worth. For IT Services companies, several key value drivers are:

  • Recurring revenue – revenue derived from managed service contracts adds visibility to near-term financial performance. Sellers with a high percentage of recurring revenue will be considered more attractive than companies with solely project-based revenue.
  • Size and scale – companies that have achieved earnings before interest, taxes, depreciation and amortization (“EBITDA”) of at least $5 million will see significant interest from strategic acquirers and private equity firms, as companies of this scale are considered less risky than smaller firms.
  • Customer diversity – a highly diversified customer base helps mitigate risk due to potential customer losses.
  • Attractive financial profile – firms growing faster than the overall industry and those generating above average profit margins due to sustainable advantages will be considered highly attractive acquisition candidates.
  • Sector expertise – niche focused firms, especially those with focus on a fast-growing market segment, will receive significant interest from both financial and strategic acquirers.

Cybersecurity is Hot

As mentioned above, sector expertise can be a key differentiator for a potential seller. One area that is hot right now is cybersecurity. As the attention on cybersecurity continues to heighten, the focus on how IT solutions can mitigate the risk of a security breach will intensify. Recent cyberattacks at large, reputable companies like Equifax and Capital One have prompted businesses to take a proactive approach in evaluating the security of their IT infrastructure and systems. The acquisition of SLAIT Consulting by ePlus is one of many deals this year that involve a strategic investment in an IT Services provider offering managed security services. A few other security-related deals include Rook Security being acquired by Sophos, Nuspire acquiring GBprotect, and Corsica Technologies acquiring EDTS Cyber and EDTS.

Implications for future M&A

IT Services is a large, growing market that will continue to attract investors and acquirers. MHT Partners, a leading technology investment bank, believes companies offering differentiated IT services and technology solutions will be highly attractive in the M&A market. If you would like to learn more, please contact Mike McGill ( or Kevin Jolley (


My Summary of SuperZoo, the National Show for Pet Retailers

I attended SuperZoo in Vegas last week and came away with the following notes and thoughts:

  • There seemed to be a slight decrease in traffic from last year’s show. Additionally, there were a few notable absences of larger companies that have traditionally exhibited. The latter is probably symptomatic of the situation facing many consumer tradeshows – retailers are dwindling, certain shows are increasingly less about writing orders and more about efficiently meeting and catching up with valued relationships, and in certain cases, demonstrating to retailers “we’re still here!” The return on investment from buying a booth versus spending a comparable amount on SEO, etc., is increasingly more difficult to calculate.
  • Like numerous other consumer trade shows these days, CBD-related companies and products were ubiquitous. I couldn’t help but wonder, however, as my senses were barraged by CBD signage, namely, (i) what’s differentiated here?, and (ii) with transparency all the rage these days, do these vendors know the source and quality of their CBD (where was the hemp grown, what was the soil quality, were there any contaminants that found their way into the plant along with nutrients and trace elements, etc.? With respect to “what’s differentiated”, the answer is oftentimes, “not much.” This answer, in turn, leads one to believe that large retailers will let many of the smaller CBD-specialized vendors battle things out, and once retailers figure out what consumers want and the science has evolved more, will simply rely on large, trusted, existing vendors (who already have the consumers’ trust) to supply them CBD products (e.g., take your existing best-selling chew and add some CBD powder to it). With respect to “know your source?” an admittedly informal and unscientific survey I took of several smaller vendors also revealed a common answer of “not really, or not entirely.”
  • Broadly speaking, nothing revolutionary was apparent, but rather the typical “incremental” improvement. This dynamic, on a floor laden with vendors who, for the most part is selling products that look and feel the same, really underscores the importance and value in vendors having diverse channel distribution, and relationships and trust with the right buyers at the right retailers. These pieces in place drive scale and growth potential, and in turn drive value.

I capped off my 48 hours in Vegas with our annual cocktail event – great way to end and thank you for all who attended! I welcome further discussions with whom I met and re-connected (

Education Technology: A Component, Not a Cure All – Part 1

Schools have increasingly migrated away from traditional classrooms in favor of digital classrooms, given the fact that technology has inserted itself into nearly all aspects of human life. Educators view classroom technology to creatively engage students in course content, as it offers personalized learning opportunities rather than a “one-size-fits-all” solution. The combination of flipped classrooms, access to online content, and data that allows teachers to access student performance in real time creates an ideal, tailored learning environment. The implementation of tailored learning supports the idea of “learner variability,” a concept defined by Digital Promise, a top tier education non-profit that works at the intersection of education leaders, researchers, and technology developers to improve learning opportunities for all through the operative use of education technology. The science behind learner variability studies the range of cognitive, social, emotional, and psychological skills that each individual student brings into the classroom. Some students breeze through traditional curriculum, have prospering social skills, and benefit from a stable support system and home life. Other students may require more guidance in order to retain and regurgitate educational content, lack natural social skills, and have a chaotic home life . Digital Promise concludes that each of these intrinsic aspects must be considered to effectively customize learning and to build effective learning solutions and curriculums for students.

The 2008 published book, “Disrupting Class,” optimistically predicted that 50% of all high school courses in 2019 would be digital. While the numbers aren’t quite there, they are certainly moving in that direction. Nearly 35% of teachers say they utilize technology in education daily, and another 23% say they use it most days1. Technology implementation is moving in the right direction; however, the most important question to consider is whether students are reaping the benefits classroom technology is intended to provide. Research conducted by Digital Promise suggests an unfortunate answer: NO. Nearly 65% of the public believes that students are not reaching high levels of educational achievement, while only 35% think schools are adequately addressing the underlying issues that would spark growth in educational achievement. In addition, only 20% of the general public, 31% of parents, and 39% of the teachers believe schools “regularly and effectively tailor instruction to meet the needs of individual students” despite the advancement and availability of education technology(1). These statistics suggest that the application of technology in education has been ineffective.

To add to the discussion of inefficiency, it is apparent that ineffectiveness touches students in unequal ways. According to a survey conducted by Digital Promise, the general population not only believes education technology has been inefficient in yielding higher achievement but also believes it has mainly been ineffective for students who struggle in the classroom. In retrospect, this means that gifted students are receiving the most benefit from the technology solutions – ironic given one would think students who struggle the most would see the most academic improvement from the implementation of education technology. Academic achievement results disprove this common perception. Struggling students see education technology as an added layer of complexity to the classroom which compel them rather than propel them.

Could too much optimism create unrealistic expectations for education technology? It is safe to say that educators and schools have enthusiastically advocated for the digital classroom as a “fix all,” however, it must not be overlooked that efficacy is limited to the way technology is utilized. 80% of the general public confidently says that, if used appropriately to address the underlying issue of learner variability, these solutions will result in an upsurge in academic achievement1. But, implementing the optimal balance between traditional and digital classroom teaching is impending. The variance in academic achievement can and must be reversed. The burning question is… How?

In the next “Learning Curves” blog, we’ll discuss potential answers to this question of “how” to effectively implement education technology to both spark growth in academic achievement and close the Digital Learning Gap. Stay tuned!



Ghost Kitchens . . . Are Dine-in Restaurants Becoming a Thing of the Past?

What if I told you that your favorite late-night delivery restaurant didn’t really exist, except for its online presence? With the evolution of food delivery that is currently underway, the $863 billion(1) (2019 U.S. projected sales) restaurant industry is changing so rapidly that the concept of dine-in restaurants might become a thing of the past, largely due to the consumer-driven migration to “Ghost” or “Dark Kitchens” that exist solely to be suppliers to delivery service platforms, such as UberEats.

UberEats, GrubHub, DoorDash, and Postmates are establishing themselves as important pillars in the restaurant industry. Morgan Stanley predicted in 2017 that food delivery services could account for up to 40% of restaurant sales by 2020. Food delivery technology allows these platforms to predict consumer eating patterns, increasing operating efficiencies and consumer satisfaction. By utilizing food delivery apps, consumers can navigate hundreds of restaurant options within seconds, selecting their preferences for cuisines, dietary restrictions, distance, and cost, making delivery an easy and effective way for consumers to get food on the table.

The popularity of food delivery services has some investors questioning the value of traditional restaurant models and is ultimately changing the way restaurants operate. Specifically, sales data aggregation has allowed service delivery platforms to better understand their customers’ needs and identify an important gap between supply and demand. For example, UberEats, amongst others, has been able to fulfill unmet demand by helping establish virtual restaurants dubbed as “Ghost Kitchens” or “Dark Kitchens” in the industry.

Since Ghost Kitchens only provide delivery options, they eliminate the need for dining space, waiters, and foot traffic, thereby reducing some of the biggest overhead risk factors in the restaurant business. The new model allows restaurants to forgo time spent on customer experience and instead focus time and resources on increasing food production. Some restaurant owners have opted to eliminate their restaurant storefronts entirely, while others have opted to add multiple Ghost Kitchens to their existing restaurant. This allows them to cater to both delivery and traditional customers, while using the same kitchen and kitchen staff.

Although these virtual kitchens should theoretically increase cost efficiencies for restaurants and expand options for consumers, important questions remain on both the industry and consumer front. What does this mean for traditional restaurants – is this a potential growth opportunity or a threat to their existence? On the consumer front, does an increase in the number of delivery options equate to an increase in quality or potential cost savings? What standards and expectations will consumers have for virtual restaurants and will they be able to meet them?

As a leading middle market consumer investment bank, we have been closely following the exciting M&A activity in this rapidly changing market. Postmates is expected to reveal its IPO filing this fall and DoorDash recently entered into an agreement to acquire its rival, Caviar. We expect more interesting developments as this changing landscape continues to evolve and will certainly keep our finger on the pulse.

(1) National Restaurant Association

Careers in Trade

Most families aspire for their children to earn a college degree. Yet higher education affordability remains a top concern, and the associated level of student debt can create years, even decades, worth of financial challenges for young adults. So, what about students who lack the time or finances to commit to a four-year degree program? Does an alternative scenario exist that yields the same results?

What is a Trade School?
A trade or technical school focuses on teaching marketable skills for particular careers. Vocational schools offer streamlined training opportunities in comparison to a bachelor’s degree. For this reason, trade programs tend to involve shorter time between enrollment and graduation. Furthermore, the learning schedule is often part-time in nature, providing greater flexibility with evening and weekend classes. Class sizes tend to be smaller than four-year college programs and the learning content typically includes hands-on practice, whether in school or via an externship.

Lower Cost Options Can Yield Quality Results
For those who lack the finances or time to invest four years in college, pursuing a trade diploma or certificate is not necessarily a “step down.” In fact, these programs provide the necessary skills that lead to very stable incomes and long-term careers. For example, the average annual wage for an air traffic controller is $125,000. Construction managers, computer network architects and elevator mechanics can also work their way to salaries of $100,000 or more . Trade programs typically require two years to complete and though they are not equivalent to a bachelor’s degree, tuition is significantly less. At the same time, while some trade programs are very specific in nature, for example, a commercial pilot’s license, others, like welding, do not necessarily restrict the student to a specific industry upon completion.

Trade Programs Can Lead to Meaningful Careers
Four-year degrees are meant to provide a holistic learning experience via core curriculum in addition to a concentrated study in one or more fields. That said, liberal arts’ programs face challenges in demonstrating the perceived value of their degrees as they can make it more difficult to connect coursework to careers. No doubt the application of such degrees is useful beyond the subject knowledge; however, there is not always a clear path to employment, and the demand for liberal arts degrees is currently declining. In contrast, trade programs offer hands-on learning as part of coursework, and in many cases, require externships in order to complete the program. These opportunities build real-world experiences that reinforce the content learned as well as boost the student’s marketable credentials upon graduation. Many trade schools maintain close connections with local employers that seek to hire these students with job-ready skills. Like traditional universities, nearly all trade schools offer career services to streamline the transition from school to career more easily for graduates. One added benefit of trade careers is that many cannot be easily replaced by a computer or outsourced to other countries. For this reason, there is actually a shortage of trade employees in the U.S., and the hands-on, in-person job offers very stable employment.

A Meaningful Path to Consider
Trade schools are a great option for working adults, people with family commitments or those needing greater flexibility in their education. It is an alternative that provides the chance to learn in-demand skills for a specific career and enter, or re-enter, the workforce more quickly than would otherwise be possible. The lower cost and greater convenience can be a valuable tradeoff for students as they think about their path to employment and a long-term career.

MHT Partners, a leading education investment bank, will keep their finger on the pulse of this emerging education alternative and welcome the opportunity to learn more about your experience in the education industry.

Alex Hicks (
Rebecca Bell (

Private Equity Investment in ENT Practices

Private Equity’s love affair with specialty physician practices continues, as sponsors with an interest in healthcare investments seek opportunities to partner with leading otolaryngology practices.

Attractive Specialty – Large, Dynamic Market

Otolaryngology, or “ENT” is a medical specialty which is focused on the ears, nose, and throat. It is also called otolaryngology-head and neck surgery because specialists are trained in both medicine and surgery.

The otolaryngology industry is dynamic and expansive, covering a broad range of medical, surgical, and cosmetic procedures, such as tonsillectomy, head and neck cancer treatments, and rhinoplasties.  Many of the procedures treated by otolaryngologists, such as asthma and seasonal allergies, hearing loss and tinnitus, and sleep apnea and snoring, affect multitudes of the U.S. population, resulting in a large, diverse potential patient base.  Due to the wide range of procedures performed by ear, nose, and throat specialists, most practices report that no single class of procedures account for more than 10% of revenues.  Industry growth is forecasted to be steady over the coming years; key catalysts of industry expansion include an increasing population of citizens age 65 and older (one in four Americans over age 65 suffer disabling hearing loss; the rate doubles to one in two by age 75), and expanding discretionary income, enabling more Americans to choose elective procedures.

A Proven Playbook

As sponsors pursue ENT practice acquisitions, they seek to execute a game plan for value creation honed through investment in other specialties such as Dental, Dermatology, and Ophthalmology – specifically the “roll-up” strategy.  As part of this strategy, a platform investment is made in a larger practice, and then several other smaller practices are acquired over time, growing the footprint of the group, expanding its geographic reach, and diversifying its collections’ base, patient base and service offerings.  Roll-up strategies are most successful in fragmented markets with numerous partnership opportunities.  In this regard, ENT presents a fertile landscape.  Indeed, it is early stage for ENT.  Only a handful of sponsor deals have been consummated, including Audax’s notable partnership with South Florida ENT Associates, and Shore Capital’s formation of Southern Ear, Nose, Throat and Allergy Partners.  Another compelling reason for investing in ENT practices is the frequent pairing (whether owned by the physicians or through other partnerships) with ambulatory service centers (or “ASCs”).  ASCs provided another attractive stream of revenues to the ENT group, allowing the group to capture facility fees, in addition to the associated patient fees. Please reference MHT Partners’ blog on ASCs to learn more.

We’re Here to Help

Partnering with specialty physician practices as they evaluate strategic alternatives for their businesses represents a significant portion of our work in the healthcare space. As a healthcare investment bank, MHT is active in the market, recently completing anesthesiology, dermatology, and emergency physician deals.  We would love to be a resource for you as you consider the rapidly evolving healthcare landscape and the implications for your practice.  If you would like to learn more about MHT’s healthcare services practice, please e-mail Taylor Curtis ( or Alex Sauter (