1 Business vs Many Deciding to Roll Up | Elliot Edge Interview

Deal facts

purchase price

$2.65m (Enterprise Value)

multiple

~3.8x SDE (implied from $2.65m EV / ~$700k EBITDA)

sde ebitda

~$700k true EBITDA

revenue

just under $2m

financing structure

SBA loan + seller note; ~$450k equity (85% Talis / 15% Elliot); remainder bank + seller note

notes

First acquisition was Palmer Technology Solutions, San Antonio TX, closed December 2019. Subsequently did 6 more acquisitions (7 total by interview date June 2024). Rebranded platform to Vonix Technologies. After 5 acquisitions, refinanced out of SBA into an SBIC credit fund with $18m delayed-draw term loan (interest-only, 5-year bullet), removing personal guarantee. Second acquisition (Simplicit Technologies, LA) paid just under 5x on slightly over $3m revenue, sub-$1m EBITDA. Total platform target: buy ~$10m EBITDA at ~5x, lever with 3x senior + 1x seller + 1x equity, exit at ~10x for ~$100m enterprise value.

Why this business

Elliot was drawn to MSPs because of his love of technology and helping people, combined with the business model's highly recurring revenues (80% contractually monthly recurring), durable cash flows, strong margins, and the deeply embedded, sticky customer relationships (average customer tenure over a decade). He also saw the MSP industry as a fragmented market with 40,000-50,000 providers in North America, making it ideal for a rollup strategy. He found Palmer through a broker who introduced it as a side suggestion while Elliot was evaluating a tire recycling plant.

What's working

• Highly recurring revenue: ~80% of revenues contractually monthly recurring, average customer relationship over a decade
• Roll-up strategy in a fragmented industry with 40,000-50,000 MSPs in North America, allowing multiple arbitrage from smaller acquisitions to a scaled platform
• Partnering with Talis (family office) as sole equity investor provided operational mentorship, playbooks, and access to a team with deep MSP lending/operating experience
• Refined integration playbook: moved from slow/conservative integration to 60-90 day full integration with clear change management framework (start with why, build trust through action, look for best practices in acquired companies to pull across the platform)
• Hiring a CFO (a close friend) was a significant unlock that freed capacity to pursue and close two more acquisitions within 7-8 months
• Depth and breadth of technical talent across the platform allows better service delivery, less key-employee risk, and stronger client retention than any single small MSP could achieve
• Refinancing out of SBA into SBIC credit fund ($18m delayed-draw, interest-only, 5-year bullet) provided runway for 3-5 additional acquisitions and removed personal guarantee

What's hard

• Bought smaller than target size (sub-$1m EBITDA vs. $1m+ goal) which meant more time working in the business versus on it, constraining management capacity for further acquisitions
• First integration (Simplicit) was very slow and conservative, stacking up integration debt across multiple acquisitions that had to be unwound later
• Did 5 acquisitions in 26 months, wore too many hats, had not built out a management team, leading to a 2-year pause with no acquisitions while digesting operations
• Maxed out SBA borrowing capacity after early acquisitions, requiring a time-consuming process to find a new lender (contacted ~40 lenders) and refinance
• COVID hit just weeks after closing the first acquisition (San Antonio was early ground zero), forcing rapid remote work transition while still in transition
• Cautions that rollup math looks attractive in Excel but value creation must be real: fragmented revenue without true operating scale, purchasing power, or better service delivery will not command a higher exit multiple

Notable quotes

Tags