MSP Acquisition: Private Equity Firm Buys TPx Communications -

Private equity firm Siris Capital Group has acquired TPx Communications, a managed IT services provider (MSP), from Investcorp and Clarity Partners. Financial terms were not disclosed.

Updated February 12, 2020: Siris has now completed the TPx acquisition and announced multiple executive changes, along with a continued commitment to channel partners.

TPx services span unified communications, contact center, managed security, managed WAN, and network connectivity solutions. The MSP has roughly 1,350 employees, and services approximately 30,000 business, government and not-for-profit customers.

Siris, meanwhile, has investment expertise across the data, telecommunications, technology and technology-enabled business service categories. Current portfolio companies include Airvana, Digital River, Mavenir, PGi, Tekelec and Web.com. We'll be watching to see if TPx emerges as a channel for some of those Siris portfolio companies.

Siris Capital Acquires TPx Communications: Executive Perspectives

In a prepared statement, TPx Chairman and CEO Dick Jalkut said:

"TPx has created a tremendous growth story over the past decade and we're going to keep that narrative going strong. Adding Siris' experience and expertise in the UCaaS and managed IT services markets will make us even better-positioned to build on our award-winning track record of innovation and service quality for the benefit of our customers. With our new partners at Siris, we look forward to building our product portfolio, customer base, and customer satisfaction to new heights as we write the next chapter in TPx's evolution and success."

Added Siris Co-Founder Frank Baker:

"For more than two decades, TPx has been a leader in developing premier managed service and connectivity solutions for the growing North American market. A key factor driving TPx's growth has been its ability to evolve its product line successfully into the UCaaS and managed services markets while maintaining its outstanding commitment to operational excellence, translating to world class service quality. We have long admired TPx's innovative products and deep customer relationships.
TPx is a strong fit with our investment strategy. We look forward to working closely alongside the TPx team to help the company address evolving customer needs and drive new opportunities for innovation and growth."

Concluded Joe Cozzolino, a Siris executive partner:

"TPx is a best-in-class UCaaS and managed IT services provider and recently received multiple awards, including being named the #2 MSP on Channel Futures MSP 501 rankings. TPx expertly serves its large, diversified customer base through the deployment of a highly scalable and reliable UC platform and comprehensive suite of managed security, managed WAN and other managed IT services. We believe that, by partnering with Siris, TPx will be optimally positioned to address evolving customer needs and remain at the forefront of innovation in UC and IT solutions. I look forward to supporting the company's continued growth and helping the team achieve its strategic objectives."

Private Equity Acquiring MSPs

Private equity firms have worked in and around the MSP market for more than two decades. But deal activity has accelerated over the past few years for a range of reasons, including:

PE firms having large sums of money to put to work;
MSP recurring revenue models;
MSPs emerging as the preferred IT services model for small businesses; and
many MSP owners/operators nearing retirement or considering personal exits.

In some rare instances, we’ve seen some MSP valuations reach 8X to 10X annual EBITDA. But ChannelE2E cautions managed IT service provider (MSP) buyers, sellers and financiers: Those lofty valuations are extremely rare deals, typically involving larger MSPs with strong annual recurring revenue growth and healthy profit margins. Or in some cases, a desperate buyer willing to overpay.

The more reasonable valuation ChannelE2E has heard is 6.5X annual EBITDA — with many deals ranging from 4X (yes, that low) to 8X annual EBITDA, based on a range of factors (cash up front vs. earnout, percentage of revenues from monthly recurring services, etc.), according to ChannelE2e interviews with key M&A sources throughout the year.

And don’t forget: In some M&A deals absolutely no money exchanges hands. Instead, some MSPs are rolling up with one another to gain scale before pursuing financing, additional tuck-in acquisitions and perhaps a strategic exit.