MSP M&A: May 2022 and Year to Date Managed Services Provider Scorecard
MSP M&A remained at a strong pace in May 2022, though we noticed an ever-so-slight slowdown toward the end of the month. We’re wondering if rising interest rates, inflation, and Wall Street jitters are beginning to impact at least some deal flow.
During May of 2022, ChannelE2E tracked 86 technology mergers and acquisitions. The total M&A deal count so far in 2022 climbed to 513 buyouts through the end of May.
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: Roughly 110 deals (about 21%) from January through May 2022 leaned heavily on MSPs.
2. Private Equity: Roughly 153 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: Twenty-two of the deals involved MSSP acquisitions. Key private equity and financial buyers in the market include:
- Castlegate Investments (backing CWSi)
- Investcorp Technology Partners (acquired HWG);
- Lee Equity Partners (backing Unlimited Technology)
- Morgan Stanley (acquired Fusion Connect);
- Nautic Partners (backing Advance Threat Holdings and Response);
- and Worklyn Partners (acquired Quadrant Information Security).
4. Cybersecurity M&A: Fully 110 of the deals (21 percent) involved cybersecurity businesses. The latest buyers include Broadcom, The Alten Group, Valeo Networks and Hornet Security.
5. IT Consulting M&A: Seventy-five of the M&A deals in January through May 2022 involved IT consulting firms.
6. Government Solutions Providers M&A: Twenty-two of the deals involved IT service providers, solutions providers, MSPs and consultancies in the government sector.
7. ServiceNow Partner M&A: Six of the deals involved ServiceNow partners — including TELUS buying Fully Managed. Moreover, we’ve seen 58 ServiceNow partner M&A deals since 2019 and expect activity to remain steady amid a shortage of ServiceNow technicians.
8. Technology M&A Valuations: Only 15 of the 513 deals we tracked so far 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. Here’s some more on what we’re seeing.
9. Year-to-Date M&A Surges: Overall, we tracked 513 technology M&A deals in January through May 2022, up 78% from the corresponding January-May 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 through May 2022 — particularly anything MSP- or MSSP-related? Drop me a line and let me know: [email protected].