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Rise of Metro Area MSPs: Here They Come

Dec 9, 2016 by Joe Panettieri

It’s happening in New England. It’s happening in Southern California. And it’s happening in a metropolitan region near you. Similar to the legal industry, MSPs are building and buying each other in specific geographies — attempting to be the dominant brand in their metro area and/or geographic region.

Two recent examples:

  1. M/C Partners, a private equity firm, this week acquired and combined Thrive Networks and Corporate IT Solutions into a single MSP. The resulting company, which carries the Thrive Networks moniker, will seek to dominate the Northeastern U.S. region.
  2. TechMD acquired StoneHill Technical Solutions in November. Now, TechMD has roughly 57 employees. The company’s major footprint is in Orange County, Calif. — but it’s safe to expect more expansion into the Los Angeles and San Diego areas. (We’ll share more details about the TechMD strategy soon.)

There are plenty of additional Metro Area MSP examples.

National MSPs?

Yes, some businesses have truly become national MSPs. Presidio, which is preparing for a potential IPO, has midmarket know-how that stretches across the U.S. And of course, All Covered (owned by Konica Minolta) serves dozens of markets thanks to a multi-year M&A strategy.

Still, I doubt we’ll see many more national “rollup” strategies in the M&A market. Plenty of big-name companies have had MSP aspirations over the years. But companies like Best Buy and Staples ultimately acquired and then sold off their MSP assets once they realized just how difficult it is to scale SMB IT services.

Among the stumbling points: Big companies somehow confused managed and cloud services. Sure, both involve recurring revenues — the magic term on Wall Street right now. But the MSP market is a “high-tech, high-touch” market. In stark contrast, cloud services are often “high-tech, low-touch.”

Dig a little deeper, and that ultimately means onboarding MSP customers is likely more expensive and more time consuming than onboarding customers for simple SaaS services. Once companies like Best Buy and Staples discovered the high-touch MSP reality they ran for the exits.

Pursuing the NFL Cities

With those realities in mind, I suspect we’ll see about three to five MSPs become the dominant players in each NFL city — defined as a region that’s large enough to host an NFL (National Football League) franchise.

Yes, there will be plenty of room for smaller MSPs to retain their niches in each of those regions. But again, it will be like the legal market, multiple sources suggest to me. Each major U.S. city now has a handful of truly dominant law firms, though thousands of smaller firms still retain their niches.

And yes, some MSPs will attempt to acquire their way into additional NFL cities. An example is Mytech Partners of Minnesota. That company plans to gradually acquire MSPs — perhaps at a rate of one per year, or maybe more slowly — to potentially infiltrate roughly 10 NFL cities. The big requirement: The seller must have and retain an on-site GM who can work closely with Mytech to coordinate and scale the overall business.

But overall, I sense that the days of major MSP land grabs — and the pursuit of multi-city M&A strategies to create national MSPs — have largely come to an end.

Instead, the market is giving rise to increasingly dominant Metro Area MSPs…

More: Track all VAR, MSP and CSP mergers and acquisitions by visiting the ChannelE2E Milestones section daily.

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