What does it take to be an M&A Master for the IT and cybersecurity industries?
Jamar Freeman of Moonshot Equity Partners is here to share his firm’s holistic approach to acquiring and building market-leading companies.
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Patrick Stroth: Hello there, I’m Patrick Stroth, trusted authority in executive and transactional liability, and President of Rubicon M&A Insurance Services. Now a proud member of the Liberty Company Insurance Broker Network. Welcome to M&A Masters where I speak with leading experts in mergers and acquisitions. And we’re all about one thing here. That’s a clean exit for owners, founders and their investors. Today, I’m joined by Jamar Freeman, founder of Moonshot Equity Partners. Moonshot acquires small and mid sized IT support, cybersecurity and telecommunications businesses to build larger, stronger and higher performing companies that deliver on a variety of IT solutions. And it’s great to have you here. Jamar, welcome to the program.
Jamar Freeman: He man, it’s a pleasure to be here.
Patrick: Now, before we get into Moonshot Equity Partners, and you know, very, very cool name, but before we get there, let’s start with you. What led you to this point in your career?
Jamar: Oh man. So I’ll take you back to the beginning where it all started. So I’m from a small town in North Carolina. You know, well, I had an opportunity to, you know, spend a lot of time my grandparents. So, you know, in that small town, well, just to give some context, how small it was, and maybe a little humor here, we had two stoplights. One of them was a real stoplight and the other one was kind of like a caution light. It just blinked. But you know, growing up there, I had my grandparents instill some from core values in me. Some hard work, integrity, and accountability. And this other thing also kind of served me. I guess, in the house growing up why I was getting so many spankings.
And you know, also now that I’m a grown man and out in the world, but when you walked into the house, they had a black and white plaque on the wall that said, always be quiet, or keep your big mouth shut until you know what you’re talking about. So I kind of, you know, try to live by that daily. But even though we had, you know, limited resources in that, in that small little town, you know, I’ve always had the desire to help people. And I wanted to do so without becoming a doctor. So I figured business and technology was my way to do that. So I went to college and picked up three degrees around IT. After graduating, I started out as a tech support engineer in the semiconductor industry. And then I got out of debt, and it started leading teams to deliver IT infrastructure and building out call centers worldwide.
And then I got into leading teams to design, develop and deploy software and technology and some some big accomplishments that I had within the company. Increased their annual revenues by $6 million in one year. And then also, the design and developing the part in another technology solution, to help another company deploy the solution out to over 100 pharmacies in the US, and it saved them $30 million. And so after that, I started my own consulting company. Same thing here, we help deliver technology projects and manage the relationships between technology service providers. And then what led to Moonshot is you know, I kind of wanted to build a larger company, a larger company smarter and faster. So Moonshot was born.
Patrick: Great right now, you know, you didn’t name it Jamar Freeman Capital, you named it Moonshot which is cool. I’m happily surprised that name was available. How’d you come up with that?
Jamar: Yeah, I didn’t name it Jamar because that sounds a little boring man. So but you know, Moonshot is because I will, my goal is to build the world’s largest, you know, alternative investment management company. So it’s my Moonshot. What else is there, you know?
Patrick: You’re shooting for the moon. Fantastic. Now, you’re focusing on lower middle market and real, real small market IT. Talk about that. What, why that space as opposed to other areas?
Jamar: Well, pretty much if a huge market is highly fragmented, you know, most of the companies in the scale we’re looking at, they like the critical mass of scaling to be competitive. They like robust sales, you know, marketing and development strategy. And, you know, they, they like the tools to enhance capabilities. And, you know, there’s limited growth opportunities for our employees. So, typically, what you see in these, these, this market, we target in the five to $10 million range is they’re losing a lot of key employees, because, you know, like I said, they don’t, they don’t offer the opportunities and the benefits aren’t as good as well. So they go up to a bigger competitor. So you know, we bring the resources to be able to help with that.
Patrick: So by doing that, you’re not just helping owners, founders and management, you’re you’re showing a pathway for everybody to improve their lives.
Patrick: That’s fantastic. Well, let’s talk about what you deliver, because you’ve got that you know, holistic approach, which is great for the organization and the people there. Tell me about the other things. What else does Moonshot bring to the table for the lower middle market?
Jamar: Well, I think here in some of, it’s fourth things roughly is key to what we bring to them. Our values here. We believe in operating with a sense of community integrity, love and do our work beyond financial gains. You know, we understand that tangibles that a business gives an owner. You know, they get achievement, camaraderie, you know, freedom, identity and purpose. We want to make sure they keep that. Use the due diligence. You know, most people use due diligence as a way to discount the price, we’re using it as a way to find a solution or way to pay to the valuation to full. You know, typically as well, you know, a lot of buyers come in, and they set the growth targets so high, that they actually end up owning the business for only what they pay for at the closing.
And, you know, half of the valuation if the owner, you know, doesn’t get. So you know, being that the owner’s already, Patrick, you know, how hard it is to build a business. So, you know, we kind of want to reward the owners for that, because they’ve already put in the energy, the time and the money to get it off the ground, and we’re just coming in to hand it. So we want to make sure we reward them for that. So basically try to give them a guarantee, in some sense. And for the valuation, that they’re getting a full. And the other thing we bring here is a you know, a proven framework to scale companies with less than $10 million in revenue to over $100 million.
Patrick: That must be, that’s really helpful, because, you know, it takes one skill set to get to a million revenue and another skill set to get to 10 million in revenue. And then a whole nother skill set as you go up market on that. And, you know, some founders that they want to do it, they just need the experience and somebody to direct them in the way. Because they know their business, but they can’t get outside of that. I think it was also interesting, when you’re talking about a guaranteed payment, where you come up with a valuation, you come up with a purchase price, and maybe they’re their earnouts or whatever. And it sounds like you’re going to work with them that maybe they don’t hit that earnout date immediately. Well, it doesn’t expire. You’re gonna you know, stay with them and see it through. I think I think that’s very, very refreshing.
Jamar: Yeah, absolutely, man. Like I said, is you want to reward them, because they already put in the hard work, you know, this is the fun part. Of course, it’s hard, you know, coming in and taking over and building something, but it’s a lot easier than building it from from the ground up.
Patrick: Okay. Now, paint us a picture. What is your profile for an ideal candidate for an investment? What are you looking for?
Jamar: So right now, we’re, we’re focused on the southeastern US market. Companies that generate between, you know, five and 10 million in top line revenue a year. You know, low concentration, low employment turnover, and of course, low customer churn. But from a high level, oh, and of course, you know, high level of monthly recurring revenue. But from a high level, that’s the things that we look at.
Patrick: And these are SaaS, telecommunications, cybersecurity, those types of software and things like that?
Jamar: Yeah, exactly.
Patrick: Okay, fantastic. And then with the concentration down there in the southeast corner of the country, then we’re talking Florida, Georgia, the Carolinas, things like that.
Jamar: Yeah, Tennessee, even on up into the Alabama.
Patrick: Okay, fantastic. Now, one of the things that is really assisting this process now is that there’s an insurance product out there that enables the buyer and the seller to transfer some risk away. So they’re not betting they’re not betting the house, that the deal is perfect, they want to go ahead and get some kind of backup and hedge hedge their investments. And what’s been nice is the insurance industry has come in with a product called reps and warranties, which is now available for deals as small as a million dollars in enterprise value to 30 million in enterprise value on a particular program. So you know, it’s ideally suited for that, and it’s going to help get the get these these transactions fixed up pretty pretty quickly. But you know, don’t take my word for it. Jamar, good, bad or indifferent, what experience have you had with rep and warranty insurance?
Jamar: I think it’s a standard order, you know, you know, so pretty SOP. You know, most times what we see is, you know, part of the purchase price gets put in escrow account to ensure nothing different happens and what was represented, you know, by the seller. Their due diligence. And, you know, owners, they will purchase a rep and warranty insurance package, you know, to kind of offset that risk if something comes up. So I mean, it’s pretty typical and standard.
Patrick: So now, as we’re going through, and I think that we’re looking at this as we’re coming into the last third of 2022 and we’re already beginning to see signs of even though there’s a lot of economic and macro headwinds, M&A activity is picking up from the summertime. And the summer was fairly robust. Jamar, what do you see going forward from now into 2023? And this is M&A in general or Moonshot Equity Partners in particular. What do you see?
Jamar: Yeah, I see, you know, the tech biz kind of slowing down a little bit. But the valuations are remaining high. And the reason the value is, the reason why it’s slowing down is because there’s uncertainty with investors due to anticipation of a recession. And, you know, even we have some high employment in the sector as well. But you know, it’s, it’s high, but it’s not, it’s not as bad as other, you know, other sectors. And the reason for the couple reasons for high valuations is, you know, in order for companies to remain competitive, they have to make the digital transformation. These businesses stick with that.
They also have a high amount of monthly recurring revenue and annotative cash flow. They offer robust infrastructure, and you know, they provide stability. And also the company what’s really important here in keeping the valuation is company still outsourced to this sector, in recessionary markets. And the reason for that is because when you outsource IT services, that kind of helps lower your costs, because now you have to, you can get rid of full time staff, not that that’s something you want to do. But it’s a way to offset it, you know, you don’t have to take all those full costs to hire people and you can rent equipment and all that type of stuff.
Patrick: Yeah, you’re talking about MSPs?
Jamar: Yeah, absolutely.
Patrick: Okay. Yeah, that’s a definite trend, that we’re gonna know. Anything on the future for Moonshot Equity Partners in particular coming up?
Jamar: We’re in the middle of raising a fund. Soft cap 50 million. Hard cap 100 million. So we’re kind of heads down, you know, raising the capital. And we have a couple of transactions right now in process that we’re going through.
Patrick: Okay, great. And then how long has Moonshot Equity Partners been around?
Jamar: Started a little over a year ago, when we start really hitting the ground and getting up and running.
Patrick: Okay, I mean, to put this in perspective, when I began my practice with mergers and acquisitions, there were probably about 3000 private equity firms out there. That’s more than doubled in the last five years. And it’s because of organizations like yours and we wish you all the success in the world. Jamar Freeman for Moonshot Equity Partners, how can our audience members find you?
Jamar: You can, our website is you know moonshotequitypartners.com You can also find me on LinkedIn or if you want to shoot me an email, email@example.com.
Patrick: Great. Again, Jamar Freeman from Moonshot Equity Partners, thanks so much for being here. Really nice to meet you. And I wish you all the best of luck.
Jamar: I appreciate it, Patrick.