Heading into 2018, we knew M&A activity in the managed service provider space was going to continue gaining speed. But this market consolidation is incredible.
Noticing an uptick in acquisition articles from news hounds like Joe Panettieri at ChannelE2E, and Lynn Haber or Edward Gately at Channel Partners, Bits & Bytes dug a little deeper into this trend. Looking only at the last two weeks in May, we’ve seen no fewer than 12 acquisitions (and honestly, there were probably more). In order from earliest to latest in that timeframe:
The concentrated snapshot of activity here is an exclamation point on what’s been a busy 18 months for buyers and sellers in the IT and managed service provider space. ChannelE2E tracked over 150 acquisitions in 2017, compiling a report on the Top 100 Mergers & Acquisitions of the year.
[caption id="attachment_15726" align="aligncenter" width="567"] Source: ChannelE2E Top 100 Mergers & Acquisitions of 2017.[/caption]
Panettieri wisely points out some of this activity is private equity-driven, or “an MSP buyer that’s quietly backed by PE dollars.” We don’t always see the source of the capital in the headlines. (see also: PE in the MSP software space, courtesy of, once again, Mr. Panettieri).
Taking a closer look, what’s driving these deals?
“Now, our operation is small, but there’s a lot of potential for aggressive…EXPANSION”
Many of these buys are driven by a need to increase their global geographical footprint (subtitle source here if it’s bugging you). Converge Technologies purchased a company focused on Silicon Valley clientele. One of the smaller deals in this roundup, ACCi buying NetGain, only acquired one branch of the business in Alabama. ACCi President Bobby Welch told ChannelE2E the deal had to do with “expand[ing] local technical resources to our new clients.” In the last acquisition of May, Extenet bought Hudson Fiber to “extend its high-capacity fiber footprint in the New York City/New Jersey metro area, along with other regions of the United States.” Feet on the street – the ability to support customers locally – is also a common topic on the MSP subreddit, where posters ask for resources willing to do some freelance work in their local area on behalf of the service provider.
If you can’t build it, buy it
FMT Consultants were already playing in the midmarket ERP, CRM, and business intelligence space. It bought a company known for CRM deployments to bolster its own offering. DC BLOX’s purchase of Infrapoint marries datacenter provider capabilities with managed hosting and disaster recovery. This is sort of a “well, duh” moment, but these acquisitions involve adding services to complement existing offerings. In many ways, it’s quicker to buy than to build.
Another interesting move recently worth noting in the MSP software space was Google’s acquisition of Velostrata, a migration solution that – from the outside – seemed to have more favor among enterprises in the AWS ecosystem. As these IaaS giants continue to duke it out for market share, acquisitions like these fuel competition by taking tools off the table that push workloads towards other cloud providers.
It’s not their first rodeo
Green House Data’s purchase marks its fifth acquisition in four years. Similarly, Rackspace’s RelationEdge buy this May is its third acquisition in the last 12 months. Simplus, now the proud owners of CirrusOne, has purchased five consulting firms since late 2016 (it was founded in 2014). And what do you know? New BlueChipTek owners Converge have also bought five companies since October 2017. Evergreen Service group has bought four “MSP-oriented” companies this year alone.
Buy, buy, buy isn’t just a strategy reserved for the Salesforces of the world. Medium to large-scale MSPs – PE-backed or not – are continuing to drive market consolidation. This trend is something many, including BitTitan CEO Geeman Yip, have been predicting over the last couple years.
Speaking of Yip, he had a couple points to add to this conversation.
What do you see as the main drivers for this market consolidation?
Geeman: I think it really centers around customers and mindshare. If you’re not offering something your customer wants, you’re creating an opportunity for that customer to walk. These businesses have to make sure they aren’t losing traction with their current customers and are also able to take on new business.
Customers are growing their own businesses, and with it so are their technologies. Are you able to service everything they are buying and deploying? For many MSPs, the answer to that is no, so we see acquisition as a strategy to pick up that slack.
What types of buys are we seeing?
- Acquisition to be a full-service organization: Basically, expand offerings around technology. Your customers are moving towards something you don’t currently service or don’t do well, so you buy someone that has that to complement your other services.
- Acquisition to expand geographically: Move into new regions, gain footholds in other markets.
- Acquisition to gain IP: Going beyond just service delivery to the actual expertise and technical knowledge, process and methodology. When these businesses discover how to package, sell, and deliver this, we see margins go up.
What’s the future hold for M&As and MSPs?
I believe the market will consolidate a lot faster over the next four years. What you need to understand is that the cloud enablement space is a multi-billion-dollar industry. The migration market alone is a billion-dollar market. Cloud enablement is a hot business when adoption rates are this high and people have a taste of what it’s like to have their email in the cloud – they want the rest their soon after. Anyone helping people move to and manage their cloud strategy is in a good spot.