MSP Consolidation Trends

MSP Consolidation Trends

From the Austin Dale Group MSP M&A Team

The outlook for IT managed service providers (MSPs) is bright. Cloud technology is proliferating, cyber security challenges expand daily, and complex always-available computing environments are required to achieve strategic business goals. All of this is happening amid a shortage of trained technical professionals. More and more businesses are outsourcing some or all of their IT management needs to MSPs.

Private equity investors are aware of this dynamic and many PE firms have jumped into the MSP sector with plans to consolidate or “roll-up” the market. That is supercharging the M&A market which was already active from strategic buyers (such as other MSPs) buying smaller MSPs to augment their growth. Investors are attracted to MSPs by the strong growth trend, high percentage of recurring revenues, sticky customer relationships, and good cash flow margins. There are over 50,000 independent MSPs in the U.S. so there is still a huge opportunity for PE investors to build large companies through acquisitions. Successful companies that can scale profitably will have to effectively integrate and automate multiple business operations to drive efficiency and competitive advantages.

The typical MSP owner is aware of the intense consolidation and M&A activity in the industry as they receive frequent inquiries, and unsolicited offers, from prospective buyers and investors. Valuation multiples are high compared to most industries and have recovered from a slight dip in 2020 due to the pandemic. Owners should develop a strategy to deal with the market dynamics, whether that means to continue growing, merging or joining forces with other operators, or planning to sell their business.

The Austin Dale Group M&A team works with MSPs to develop and execute a customized strategy to meet each client’s goals. We bring deep industry and transaction expertise to every engagement and we are comfortable working on the sell-side and the buy-side. Contact us to have a confidential discussion about your unique situation and requirements. We can help you create a plan that makes sense for you, your shareholders, and your other constituents.