An Industry Who Got Private Equity to Dream! Are They Now awakening to Nightmares? I recently heard a very senior leader with one of the private equity-backed roll-ups within the print industry discussing components of their Managed IT Services Deliverable.
As I listened to the leader share the aspirations and path of the organization, I could only scream DON’T DO THAT!
The description reminded me of a speech prepared for a BTA meeting held in the mid-2000s. It still amazes me that the industry needs help grasping the basics of IT services. Delivered in a way to build a profitable enterprise Managed IT Services Firm.
For nearly a decade, I have been screaming that none of my print dealer friends should be building an unprofitable or extremely low-profitable lifestyle IT services business to replace the fading revenues of print. But, unfortunately, too many dealers are still attempting just that.
As I listened to the leader dismiss the value of assessments and discuss the merits of low revenue reoccurring contracts, he sounded like a sub-million-dollar lifestyle MSP. He did not sound like a confident leader building a 100-plus million-dollar IT Services firm.
It became clear that the discussed business model described the delusion many in the industry have been chasing. But unfortunately, it seems this organization has caught the preverbal tiger by the tail, and the tiger is eating them alive.
If a dealer aspires to reach 150 million in IT managed services and believes 1-1.5K reoccurring service contracts are OK, I think they forgot to finish doing the math regarding the cost of delivering the revenue they seek.
The industry’s roll-up’s obsession with chasing revenue at all costs will soon hit a brick wall as the private equity turns off the faucet feeding the cash to offset the unprofitable income.
A few private equity investors were sold the nonsense that the print industry was positioned perfectly to deliver services beyond their scope of competence. They were sold this without ever asking for a proof of concept. As we learned from the past, when money is cheap, investors make questionable bets.
Here’s the bad news, the day of reckoning is coming. On Friday, we saw the beginning of that reckoning as the bank SVB failed. As a result, the scrutiny of financing within the industry I have been discussing has arrived. All investors have to weigh their bets and, more importantly, walk away from those bets with no hope of a payout.
Tune in this coming week as I discuss the private equity-backed roll-ups, digging into mezzanine loans, and possible significant shifts in equity positions.
The Dreams regarding the print channel’s IT aspirations are quickly becoming nightmares. It’s time the industry’s actors reevaluate to ensure aspirations align with financing as the faucets spewing cash get turned off.