To merge or not to merge: the future of PSM
Blog post sponsored by ReachOut Technology
Over the past few years, M&A activity has exploded in the IT channel. Experts predict that the managed services market will reach $ 329.1 billion in 2025 in a fast-growing industry, while simultaneously consolidating. In 2019, two-thirds or more of MSPs were considering being bought out by a larger agency, with 20% of large agencies considering purchasing an MSP. Ongoing pressures from COVID-19 have kept these trends on track. Even if the forecast drops to 10%, small to medium-sized PSMs should be open to opportunities.
What does this unprecedented level of activity mean for your MSP business?
According to a recent IT Glue survey, 53% of the 501 companies on the 2018 Channel Futures MSP 501 list were planning to merge or be acquired within two years. There are several main reasons for this M&A activity within the MSP space.
Baby boomers bow out
Channel e2e reported that thousands of baby boomer owners were looking to leave their businesses to capture the equity in the businesses they started.
Customers demanding a “one-stop-shop”
There is no denying that Managed Information Security (IS) services and IT services are combined. This makes more sense to the consumer when looking for a full service. If you don’t provide all the services that customers demand, you risk going for one-stop competitors.
Lagging behind IT trends
When they focus on growth, many companies stop focusing on innovation, new technologies and advanced team training. Customers continue to grow their own businesses and want the latest solutions. Skills and resources can often fall behind or be out of reach due to limited capital.
Short of money
Providing greater service coverage and growing your MSP business always comes with growing cash flow needs.
Remote, remote, remote
The acquisition of MSP can experience a meteoric rise as the world no longer requires companies to remain physical or in the same zip code. MSPs that come together can now easily take market share in any region.
Boost business skills
In addition to giving you the skills you need to keep abreast of new technologies and customer expectations, weaknesses in areas such as processes and methodology, compliance or even sales and marketing. could be corrected by merging or acquiring an MSP with complementary skills. .
Investors see MSPs and MSSPs as great opportunities
The majority of PSMs are “lean”, so growth prospects are good, especially when they have strong relationships with their clients. Channel Futures reports that VCs are taking over MSPs and OEMs to create powerful entities. Valuations are high and capital relatively cheap, making IT departments, tech companies, and MSPs preferred by venture capitalists.
Can small to medium-sized PSMs survive?
Here at ReachOut, here are some facts that highlight what the future holds for PSMs:
- Demand for managed services has never been greater
- More and more PSM are entering the profession every day
- Baby boomers want to get out, but at the best valuation
- Geography is no longer an obstacle to collaboration
The other is that while investors swim around small to medium sized MSPs like sharks in water, they are looking for a particular size. For example, when ReachOut Technology brings together an MSP under the family umbrella, we look for specifics such as:
- At least three employees
- 1 to 5 million dollars in annual sales
- 50% of contracts must be monthly recurring revenue
With PE companies seeking MSPs with a minimum of $ 15 million in annual recurring revenue and double-digit margins, this drastically reduces the opportunities.
Is the “Super MSP” inevitable?
MSP consolidation is underway and is a big part of the future of the IT space. This question has been answered. It remains to answer:
- Who will remain standing?
- How will customer trends impact mergers?
- Will the “Super MSP” come out both bigger and better?
“Big” can be better and bring benefits such as access to more resources, a wider range of skills and experiences – and access to capital, for example.
However, “small can be beautiful” and when applied to MSPs it can mean greater agility, a closer connection with customers and the ability to serve niche markets profitably.
At ReachOut, we are focused on blending the two scenarios with the goal of acquiring 75 MSPs and bringing them together under the family umbrella with exceptional training and support so clients only see the positive of mergers. The main thing is to satisfy our customers.
There is no one-size-fits-all solution to learning the new skills you need. Many are developed in-house, but we cannot ignore the new services expected by our customers. Under the aegis of ReachOut, we are passionate about improving our skills and our progress in an ever-changing landscape.
Calculate the value of your MSPs here and plan to live the life of your dreams.
The article To Merge or Not to Merge: The Future of MSPs appeared first on Kaseya.
*** This is a syndicated Security Bloggers Network blog from Blog – Kaseya written by the guest author. Read the original post at: https://www.kaseya.com/blog/2021/11/30/to-merge-or-not-to-merge-the-future-of-msps/