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MSP M&A: January 2022 Scorecard

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MSP M&A activity continued at a frantic pace in January 2022. The evidence: During the first month of 2022, ChannelE2E tracked nearly 150 technology mergers and acquisitions. 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: Nearly 50 M&A deals in January 2022 leaned heavily on MSPs.

2. Private Equity: Roughly 40 M&A deals 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: Five of the deals involved MSSP acquisitions. Key private equity and financial buyers in the market include Morgan Stanley (acquired Fusion Connect) and Worklyn Partners (acquired Quadrant Information Security).

4. Cybersecurity M&A: Twenty of the deals involved cybersecurity businesses -- though we saw three additional cyber M&A deals on the first day of February. The latest buyers include Arctic Wolf, Check Point Software and Forescout.

5. IT Consulting M&A: Twenty-seven of the M&A deals in January involved IT consulting firms.

6. Government Solutions Providers M&A: Six of the deals involved IT service providers, solutions providers, MSPs and consultancies in the government sector.

7. ServiceNow Partner M&A: Only two of the deals involved ServiceNow partners -- though we've seen 54 ServiceNow partner M&A deals since 2019 and expect activity to pick up in the weeks ahead.

8. Technology M&A Valuations: Only five of the 150 deals we tracked in January 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. January 2022 vs. January 2021 M&A Activity: Overall, we tracked 144 technology M&A deals in January 2022, up 67 percent from 86 deals in January 2021. Among the reasons for the January 2022 surge in M&A activity, 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 (once folks returned from the holidays).
  • The January 2021 figures, compared to January 2022, were likely a bit soft because MSPs and technology companies 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 January 2022 M&A figures likely grew because we have 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 2022 -- particularly anything MSP- or MSSP-related? Drop me a line and let me know: [email protected].

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.