Current Trends in Managed IT Services

• Talent Scarcity – The biggest growth challenge cited by MSP operators is the scarcity of good IT Engineers and supporting talent. Because of this, employee retention is quickly becoming as important as customer retention in driving valuation
• Cybersecurity Tailwinds – Customers who previously hesitated to invest in security are increasingly receptive to adding and expanding protection given increase in ransomware and other cyber attacks
• Vertical Specialization – Serving a healthcare client requires completely different toolbox / skill set than a financial institution (for example), and an increasing number of MSP/MSSPs are specializing in end-markets to grow market share quickly

MSP Transaction Deals and Drivers

• Intra-Regional Plays – Many larger MSPs, especially those backed by a Private Equity group, are “rolling up: geographies and acquiring multiple companies with the goal of being the de facto leader in a region
• Cost Synergy & Operational Efficiency – Though additional engineers and support staff are required for growth, acquirers are looking to realize economies of scale through shared back-office services and cost leverage
• Cross-Selling Acceleration – Smaller MSPs often can’t offer the breadth of solutions their customers need. M&A can be an attractive way to add service / product lines to expand revenue within existing customer base

Increasing Need for Talent Among Factors Driving Recent M&A Activity