EACS MD on M&A: There is an overinflated value on businesses in the channel right now

Kevin Timms told CRN that companies seeking to be bought are coming to him with 'ridiculous' valuations

The recent M&A frenzy in the channel has led to some companies over-estimating the value of their business, according to EACS MD Kevin Timms.

The MSP made its first acquisition with London-based Sentronex in August 2018, but Timms told CRN that further purchases are not on the horizon due to the valuations some companies are putting on their businesses.

"[There aren't any more acquisitions planned] at this point," he said.

"To be frank, we've noticed in the marketplace at the moment that there is an overinflated value of businesses right now, and I think it's because there's been a reasonable amount of M&A activity over the last couple of years.

"We're seeing people come to us with a half a million or £1m revenue on the books and asking for valuations of £2m.

"The valuations at the moment are just ridiculous. I don't know how many of them are actually going through at that kind of level, but they're certainly not good value from our perspective."

The MD admitted that the acquisition of Sentronex did present some obstacles for EACS, but that it was worth it for what it added to the company: a base in London, a technical team that is available for on-site support and a new disaster recovery service.

"With an acquisition, you always have to look at what it's going to cost me," he advised.

"What could I do with half a million or a million pounds? And can I better invest that in continuing to build my own consulting team and sales team versus buying another company? And that comes with the challenge and the distraction of doing the integration.

"So whilst we were really pleased with our Sentronex acquisition, it's not been without its management distractions.

"So if the right company comes along at the right value, then yes, we would purchase. But I'm just not seeing that at the moment."

Timms bought EACS two years ago when revenues were around £16m, and recurring revenue accounted for 35 per cent of that figure.

In its most recent fiscal year - which ended on 31 March 2019 - Timms told CRN that the revenue has grown 47.5 per cent to £23m, with recurring revenues accounting for 53 per cent of that total.

He acknowledged that the EBITDA was lower than its FY18 figure of £793,000, but he attributed this to the acquisition and integration of Sentronex into the company.

"The base of our business has changed significantly to recurring revenue, and a significant amount of that now is managed service," he said.

"So we feel we've made pretty good progress as an organisation in terms of what we wanted to do."

The MSP's growth is down to a restructuring of the sales team, strong investment in a small number of partners and winning new deals, including two major contracts worth over £400,000, the MD said.

He added that EACS has at least three more such contracts in its targets.

So we've been able to identify those and go and win them," he said.

"This was probably something that the company wouldn't have done in the past, they wouldn't have gone and tried to win them.

"The next barrier we want to hit is £25m and one month into our new financial year, I'm reasonably confident we're going to be able to grow the business again at the same kind of rate."

This article is from CRN Channel web.