MSP M&A: February 2022 Managed Services Provider Scorecard
MSP M&A activity continued at a strong pace in February 2022. The evidence: During the second month of 2022, ChannelE2E tracked more than 70 technology mergers and acquisitions. The total M&A deal count so far in 2022 climbed to 217 buyouts through the end of February.
Dig into the data, and here are 10 things to know about those M&A deals — particularly as they pertain to MSPs (managed services providers), MSSPs (managed security services providers), cybersecurity firms and IT consulting firms.
1. MSP Mergers and Acquisitions: More than 60 M&A deals (roughly 29%) in January and February 2022 leaned heavily on MSPs.
2. Private Equity: Fully 66 M&A deals — or 30% of the transactions — involved private equity firms. In some cases, private equity acquired a “platform” MSP while preparing additional tuck-in purchases. In other cases, PE firms quietly worked behind the scenes to tuck more MSPs into their existing platform investments.
3. MSSP M&A Deals: Ten of the deals involved MSSP acquisitions. Key private equity and financial buyers in the market include:
- Investcorp Technology Partners (acquired HWG);
- Morgan Stanley (acquired Fusion Connect);
- Nautic Partners (backing Advance Threat Holdings and Response);
- and Worklyn Partners (acquired Quadrant Information Security).
4. Cybersecurity M&A: Forty of the deals (18 percent) involved cybersecurity businesses. The latest buyers include Cloudflare, Darktrace and Imprivata (backed by private equity firm Thoma Bravo).
5. IT Consulting M&A: Thirty-six of the M&A deals in January and February involved IT consulting firms.
6. Government Solutions Providers M&A: Eight of the deals involved IT service providers, solutions providers, MSPs and consultancies in the government sector.
7. ServiceNow Partner M&A: Four of the deals involved ServiceNow partners — including TELUS buying Fully Managed. Moreover, we’ve seen 56 ServiceNow partner M&A deals since 2019 and expect activity to pick up in the weeks ahead.
8. Technology M&A Valuations: Only six of the 217 deals we tracked in January and February 2022 revealed the deal’s valuation. Sure, we’ve heard about MSPs being valued at more than 10X annual EBITDA. But keep in mind: Plenty of M&A deals involved far more conservative valuations. Consider this: Converge Technology Solutions purchased Paragon Development Systems for 5.8 times adjusted EBITDA. For more on MSP valuations, check out our January 2022 webcast with Service Leadership’s Paul Dippell; it’s available on-demand.
9. Year-to-Date M&A Surges: Overall, we tracked 217 technology M&A deals in January and February 2022, up 53 percent from 142 deals from the corresponding two-month period in 2021.
Among the reasons for the 2022 surge in M&A activity (year-to-date), we suspect:
- More companies completed deals in December 2021 in a race to avoid potential tax increases on capital gains in 2022. Those December 2021 deals were then announced in January 2022 and early February 2022.
- The early 2021 figures, compared to the early 2022 figures, were likely a bit soft because MSPs and technology companies in early 2021 were still navigating heightened COVID-19 issues that stalled some M&A discussions.
- Private equity firms continue to lean toward the MSP market (and trustworthy recurring revenues) because valuations are lower than SaaS companies.
- Demographics suggest a major slice of the market is “aging out” of business ownership. Rewind to 2015 and early 2016, and ChannelE2E predicted that M&A activity would reach a peak in 2022 based purely on owner demographics.
- And finally, the 2022 M&A figures (year to date) likely grew because ChannelE2E has more and more sources sending us deal flow information. (Big-time thank you to all of those sources.)
10. What M&A Deals Did We Miss?: Did our global M&A list fail to track a specific merger or acquisition in January or February 2022 — particularly anything MSP- or MSSP-related? Drop me a line and let me know: [email protected].