Private equity firm Centerbridge Partners may be looking to sell Ahead Inc. -- an enterprise and cloud MSP, a Reuters report asserts. Ahead Inc. joins a growing list of massive MSPs that apparently are up for sale. The others include: The asking price apparently is roughly $3 billion -- or roughly 13X annual 2022 EBITDA estimates.Neither Ahead nor Centerbridge were quoted in the report.Still, the overall managed IT services sector certainly is not recession proof. The evidence: Even in a healthy economy, roughly 25 percent of MSPs are break-even or losing money each quarter, according to Service Leadership Inc., a ConnectWise business. Certainly, those money-losing service providers could face cash-flow pressures if their customers cut per-user head counts or scale back recurring services.On the flip side, some pundits argue that MSPs can benefit during a recession. The thesis: As mid-size and enterprise businesses scale back their own IT hiring, they’re more inclined to outsource IT services to MSPs and MSSPs. The thesis makes sense and may give some high-performance MSPs a lift. But we don’t think a recession would cause an overall tidal wave of IT outsourcing opportunities.
Ahead's anticipated financial metrics for 2022, according to the report, include:
- Revenue of $2.5 billion, up from $2.2 billion in 2021;
- Earnings before interest, taxes, depreciation and amortization of more than $230 million.
Ahead's Private Equity Ownership, Earlier Acquisitions
Centerbridge Partners has owned Ahead since 2020. The cloud MSP has grown organically and through acquisitions. Ahead purchases have included:- Acquiring vCORE Technology Partners — an IT solutions provider in Scottsdale, Arizona -- in May 2022.
- acquiring Vertical Trail in 20221;
- acquiring Platform Consulting Group in early 2020;
- acquiring RoundTower Technologies and Kovarus in September 2020.
- merging with Data Blue while acquiring Sovereign Systems in late 2019; and
- acquiring Link Solutions in July 2019.
Multiple Big MSPs, CSPs Up for Sale?
Ahead joins multiple major MSPs and cloud service providers that apparently are up for sale and/or considering exits. Other potential deals include:- Cincinnati Bell seeking to sell CBTS — an MSP & MSSP that offers UCaaS, cloud & cybersecurity services.
- Private equity firm BC Partners may be looking to sell Presidio, a major IT solutions provider that has cloud MSP, MSSP and cybersecurity capabilities.
- Rackspace has been evaluating strategic alternatives and options since May 2022. The multi-cloud MSP reorganized at that time, and expects to share Q2 2022 results on August 9, 2022. We suspect Rackspace may provide an update on the strategic plan -- including potential asset sale considerations -- in time for those earnings.
Why MSP Valuations Remain Reasonably Strong
MSP and MSSP valuations have held up well — despite plummeting SaaS company valuations on Wall Street. Why’s that?- Generally speaking, MSPs and MSSPs have always been valued based on their EBITDA (earnings before interest, taxes, depreciation and amortization). Sure, there are additional valuation metrics. But M&A in the MSP market has largely been a profit-based conversation for more than a decade.
- Meanwhile, SaaS companies until recently were largely valued based on their annual recurring revenue (ARR) — and many SaaS investors ignored bottom-line profits.