To understand the potential upside for this deal, it's important to understand each company's history:
- TekLinks, based in Birmingham, Alabama, is the rare IT service provider that is a VAR, MSP and CSP. While most IT service providers can't afford to build out their own cloud infrastructure, TekLinks already offers a range of home grown cloud services and the company is backed by a private equity firm.
- Pamlico Capital in Aug. 2012 acquired a majority stake in TekLinks. As part of that deal Jim Akerhielm became TekLinks' CEO.
- TekLinks VP of Managed Services David Powell is an ETG veteran. That history provided a level of confidence and cross-company trust before the M&A discussions even started.
- ETG, also in Birmingham, started off as a general purpose MSP that gradually mastered the health care market. Next, CEO Mike Jones transformed ETG into ClinicAnywhere, which offers a range of software and billing solutions to small health care clinics.
- Jones will assist TekLinks with the MSP acquisition for about three months (to be rebranded as TekLinks Healthcare Services Group), before focusing entirely on his ClinicAnywhere business.
Somewhere in mid- to late-2012, former TekLinks CEO Stuart Raburn (still on the company's board) set up a meeting to help Akerhielm and Jones get to know each other, recalls Jones. Meanwhile, TekLinks' David Powell had previously worked with Jones so there was built-in trust among both parties.
"David [Powell] is unique situation since he has history with us," said Jones. "Jim [Akerhielm] is a guy who I got to know during this process. And as you know there are a lot of moving parts to getting this done. At every point, Jim treated me with complete respect and was nothing but straight-up during all the negotiations. When you have a foundation of history and trust, it's a pleasure to work this type of deal."
Early in the discussions, Jones' potential long-term role at the combined company wasn't clear. But Jones also knew that his MSP business needed to solve the cloud question.
"Everyone is at a cross-roads at the cloud," said Jones. As an MSP, "you'll adapt and find the right partnership or find the right strategic alliance -- or you'll suffer the consequences. Looking at building out a data center was not an option for us. We didn't have all our bullets in the gun if we didn't find the right solution. TekLinks had the solution. It's a rare case where it's a win for everyone."
Indeed, TekLinks already had a cloud business that was in growth mode. Eventually, the two sides agreed that Jones would assist with MSP transition into TekLinks but his long-term focus would be on the separate company, ClinicAnywhere.
Disclosures and Due Diligence
When it became clear that a potential deal looked very possible, Jones permitted TekLinks to interview his top 10 MSP customers, along with 5 other customers (selected by TekLinks) from a top 25 clientele list. Customer feedback came back positive -- which is hardly surprising, since Jones' average customer has been on board for 59 months. Plus many of ClinicAnywhere's MSP customers were already running some cloud services with TekLinks.
Jones also looped in its staff as the official deal approached. "We were transparent with our staff all along," said Jones. "This deal gets them upward mobility while becoming part of a larger organization."
TekLinks will leverage the deal to build an even deeper footprint in medium and large health care environments.
"The upside for us is in the service delivery model," said TekLinks' Powell. "[ClinicAnywhere's MSP business] is much more hands-on, high-touch than we have traditionally employed. In theory we can go into other high-touch markets like legal services. The opportunity for us is to build on the best of what they had historically, plus what TekLinks has as a cloud offering."
"When we were doing the due diligence calls, it was more like confirmatory diligence," said Powell. "During every single call the customer was able to articulate [ClinicAnywhere's MSP] value proposition. They company has the right vertical market expertise. The right industry association relationships."
But once Jones exits the MSP business and focuses full-time on ClinicAnywhere in about three months, will TekLinks retain that deep vertical market expertise?
TekLinks has already found an answer to that riddle. And it's an impressive one. Stay tuned for those details -- which have yet to be publicly announced.