Private Equity: Abry Partners Funds MSP Acquisitions, Buyouts
When NexusTek confirmed three MSP acquisitions this morning, the buyouts reinforced private equity’s key role in a race to build national MSPs in the United States. Moreover, similar private equity initiatives involving MSP buyouts continue to accelerate in Europe.
NexusTek parent Abry Partners is a familiar private equity name in the MSP sector. Indeed, the PE firm acquired Breakthrough Technology Group (BTG) in December 2017, owns a stake in Rackspace, and also helped NexusTek to recapitalize its business in December 2017.
Describing Today’s NexusTek deals, Abry Partners Principal James Scola asserted:
“NexusTek, in executing its strategy for growth through acquisition and organic means with such alacrity, is now entrenched as the partner that small and middle-market businesses need to migrate and manage mission-critical applications in the cloud without disrupting performance.”
Why Private Equity Firms Invest in MSPs
There are at least five reasons private equity firms are acquiring MSPs, and then tucking smaller IT service provider acquisitions into those businesses, according to Riverside Partners. They include:
- The increasing amount of capital that private equity firms have to invest.
- The mission critical, recurring revenue nature of MSP services. In other words, the market isn’t a passing fad.
- The significant MSP industry tailwinds. Businesses of all sizes are spending more on IT during multiple inflection points (cloud, greater outsourcing of non-core functions, digital transformation, etc.). That bodes well for MSP investments, he says.
- Evolving MSP business model enables greater scalability and margins. In other words, there’s real scale and less dependence on hardware sales and labor.
- The highly fragmented MSP market provides numerous acquisition opportunities and potential benefits from M&A.
Additional Private Equity MSP Investments, Acquisitions
Additional examples of private equity-MSP buyout deals include:
- Ardenton Capital Corp. invested in Achieve One, a fast-growing IT architecture and services organization.
- Alvarez & Marsal Capital acquired a majority stake in CNSI, which specializes in healthcare IT management technology.
- Evergreen Services Group, backed by Alpine Investors, has made five MSP investments this year.
- Madison Dearborn Partners (MDP) in April 2018 acquired Remote DBA Experts (RDX), an MSP that provides remote database administration (DBA) and cloud managed services. It sounds like additional tuck-in acquisitions are planned.
- Mayfair Private Equity in May 2018 acquired UK-based GCI, and plans to tuck multiple companies into the ICT provider.
- M/C Partners acquired Thrive Networks in late 2016 and has since tucked in multiple businesses.
- Sentinel Capital Partners acquired UBEO Business Services, a provider of printer, copier, and related office equipment.
Private Equity: MSP Exits
Still, the private equity gravy train won’t last forever. Several PE firms are looking to exit the MSP sector amid challenges in scaling those businesses. ChannelE2E will strive to share more details about that trend soon.