Why IT Managed Service Provider (MSP) businesses are being acquired?

The Second of Four Installments in our Series: Managed Service Providers

In our previous blog post titled,Why IT Managed Service Provider (MSP) businesses are being acquired? , we discussed the current market frenzy over cloud-based technologies and the heightened activity with mergers and acquisitions within the Managed Service Provider industry. In this article, we cover a few more important factors contributing to higher valuation of IT Managed Services or MSPs for business acquisition.

The business acquisition activity for buying an MSP is amplified by robust future growth projections and the fact the industry is expected to surpass $300 billion in revenues within the next 5 years.

Here are three value drivers that are fueling the merger acquisition activity:

• The industry is ripe for investor interests: Steady growth, customer retention, recurring revenue, and ability to scale are very attractive to investors. This applies to both strategic buyers and financial investors.
• Development of Specialized Vertical Markets: MSPs are increasingly finding it valuable to focus on a few customer types and their needs. Then with the in-depth understanding of their business, strengthen their relationships with these customers. MSPS are increasingly using this driver for their growth.
• Streamlining operations: MSPs are using acquisition as a tool to plug their weaknesses or complement compliance, processes, marketing, or any other shortcoming.

For most buyers, robust management, resilient operations, loyal customers, recurring revenue, and scalability are attractive.

If you decide to acquire to build capabilities, you must design your growth strategy. Understand your company acquisition goals, define parameters for acquisition (size, location, competencies, customer demographics, vertical market, etc.) and make sure your company is ready. Understand your needs for processes, systems, and talent integration, and have access to financing.

What does this mean for current MSP owners?

M&A activities will continue to grow for several years and it’s important that owners remain ready for the next opportunity. If you want to prepare your business for sale or acquisition: learn more about the value of your business, different buyers–strategics, investors, employees, or others–and their value drivers.

Whether you are interested in knowing the worth of your business or interested in buying an IT Managed Service Provider firm, Sunbelt Business Advisors can be of your help.

To read the first installment, click here.

Tarun Gujral
Business Broker

tgujral@sunbeltmidwest.com
612-454-5010