The managed services industry remains a hotspot for investment -- despite concerning economic trends.
The pace of MSP mergers and acquisitions slowed in the early months of the COVID-19 pandemic, recovered in the second half of 2020 and soared throughout 2021. Inflation, rising interest rates, stock market declines and the possibility of a recession, however, complicate the 2022 economic outlook. Yet MSP deal-making continues unfazed.
Jonathon BuntDirector, FFL Partners
Consider the following transactions that surfaced over the past two weeks:
- Node4, an MSP with headquarters in Derby, U.K., acquired Risual, a managed services and solutions provider also in the U.K. The acquired firm is a Microsoft Gold partner that employs 170 people. Node4 pursues acquisitions with the backing of Providence Equity Partners, which focuses on technology companies, among other industry sectors, in North America and Europe.
- Service Express, a data center and infrastructure solutions provider in Grand Rapids, Mich., closed two deals, buying iTech Solutions Group, an MSP in Connecticut, and iInTheCloud, a cloud hosting provider in Michigan. The iTech purchase brings Service Express IBM i system administrators and IBM Power Systems technicians. The iInTheCloud deal contributes data centers based on IBM Power servers.
- Logically, an MSP based in Portland, Maine, acquired Cornerstone IT, a Microsoft Gold Certified partner that specializes in manufacturing, construction/development, insurance and professional services. The MSP deal marks Logically's 11th transaction since 2019 and its second in Ohio.
- FFL Partners, a private equity firm headquartered in San Francisco, completed a strategic growth investment in Abacus Group, an MSP based in New York City that focuses on the financial services vertical. Abacus employs more than 250 people and has on-site support teams in financial centers in the U.S. and U.K.
- In the broader IT services sector, Whereoware, a digital experience agency in McLean, Va., purchased LookThink, a user experience consultancy also in the Washington area. The combined companies support technology platforms including Salesforce, Optimizely, Acquia, Drupal, WordPress and Acoustic. In another consulting industry deal, Prolifics, an IT services firm based in Orlando, Fla., acquired Tier 2 Consulting, which operates in England and Wales.
An attractive investment
"At a high level, MSPs are a really attractive investment area, and I think that has been increasingly recognized by the private equity community," said Jonathon Bunt, director at FFL Partners.
The appeal of MSPs as investment candidates stems from business models built on recurring revenue and attractive cash flows, as well as the fact that MSPs stand to benefit from macro IT trends extending into the future, Bunt noted. Those key trends include an increasing focus on cybersecurity, the scarcity of IT talent, and the growing compliance needs of businesses in heavily regulated industries such as healthcare and financial services, he said.
The fundamentals propelling the industry could see it through challenging economic times. MSP valuations, thus far, have shown staying power.
"In contrast to the public stock market, where the tech-heavy Nasdaq is down about 30% since its November 2021 peak and the S&P 500 is down 20%, we are seeing little to no decrease in valuations," said Abe Garver, MSP team leader and managing director at Focus Investment Banking in Vienna, Va.
Writing in his MSP investment newsletter, Garver also noted an increase in the number of MSPs and private equity groups seeking conversations with his company about selling or buying MSPs. Private equity, he said, has plenty of capital to buy MSP platforms, noting the biggest problem is the scarcity of attractive assets to purchase.
"I think there is competition for good MSP and IT assets, in general," noted Michelle Accardi, CEO at Logically.
Rising interest rates, however, could put the brakes on growth and affect corporate earnings -- and, by extension, the demand for MSP services.
"With the landscape we are moving into now, it's going to be interesting to see how things evolve," Bunt said. MSPs, however, have some factors in their favor should economic activity decline. Outsourcing can become more attractive in a down market, he said, as businesses look to control costs and maximize flexibility.
What's more, the continuing scarcity of IT talent means businesses will "continue to need MSPs regardless of what happens from a macroeconomic perspective," he added.
From the investment point of view, interest rates could influence how buyers evaluate candidates.
"The change in interest rates really affects how investors think about cash flow and future cash flow," Bunt said. When interest rates are low, for example, investors might place a higher value on future growth, he said. But with higher interest rates, future, more-speculative cash flow is viewed as less valuable.
Deloitte offers zero-trust managed service
Deloitte on Monday launched a managed service that aims to help organizations speed up their adoption of the zero-trust security framework.
The company's Zero Trust Access service connects users to applications through a cloud-native offering. The managed service is available on a standalone basis, integrated with other Deloitte offerings or as part of a broader offering that uses technologies from Deloitte's alliance ecosystem.
The managed service can replace remote access approaches including VPN, virtual desktop infrastructure and desktop as a service, according to Deloitte. Those technologies involve significant infrastructure expenditure, along with high operating costs and technology management overhead, the company said.
Sada migrates on-premises Hadoop to GCP
Sada, a business and technology consultancy, has rolled out a migration service for on-premises Hadoop environments that are getting a little long in the tusk.
The Los Angeles company's Powerstart Hadoop Migration Assessment aims to help clients move their Hadoop cluster workloads to Google Cloud Platform (GCP). The service discovers an organization's current Hadoop cluster topology and workloads, and recommends steps for migration.
The goal is to accelerate time to value and de-risk implementation, said Brian Suk, associate CTO at Sada. Customers with legacy Hadoop deployments might have clusters they no longer pay attention to, he said. Other customers, however, might still use Hadoop for core analytics and business processes.
"We really want to take care of these workloads when customers are engaging us to help move to the cloud," Suk said.
Organizations pursuing such migrations seek to simplify their operations. They also want to tap GCP's advanced analytics, AI and machine learning components, Suk added.
But customers might first focus on using like-for-like capabilities when they swap on-premises Hadoop for Google Cloud. For example, organizations can use Google's Dataproc managed service to replace self-managed Hadoop clusters, Suk said. In addition, data maintained on the Hadoop Distributed File System can typically move over to Google Cloud Storage, while workloads on the Hadoop HBase database can be easily ported to Google's Bigtable NoSQL database, he noted.
Suk also pointed to the ability to use Google's Serverless Spark technology, which he called an exciting development. Serverless Spark aims to boost developer productivity with Apache Spark, a distributed processing framework for large-scale data analytics applications.
Apache Spark is where most organizations run their heavy analytics workloads on Hadoop, according to Suk. "Serverless Spark is very intriguing," he said. "It's really going to change the way that people adopt Hadoop in GCP."
- N-able, an MSP software provider in Burlington, Mass., has acquired Spinpanel, a multi-tenant Microsoft 365 management and automation platform based in the Netherlands. The company said it anticipates adding Spinpanel's technology to its product portfolio during the third quarter of 2022.
- Accenture closed its acquisition of XtremeEDA, a silicon design services firm in Ottawa. The acquired company provides semiconductor engineering services for North American clients. About 40 XtremeEDA engineers and practitioners will join Accenture Cloud First.
- Action1 Corp., a remote monitoring and management software company in Houston, added features to its Action1 RMM offering. The latest release of the company's RMM tool includes automated reusable policies and a simplified patching process, according to the company.
- Ingram Micro Cloud now offers GCP, Google Workspace and Chrome Enterprise to its resellers in Singapore, Indonesia, Malaysia and Thailand. The distributor's Google Cloud offerings previously launched in the U.S., the U.K., Canada and France.
- Atera, an RMM provider in Tel Aviv, Israel, unveiled an integration with Malwarebytes, a cyber-protection company. The integration automates the licensing and provisioning of the Malwarebytes OneView platform. Malwarebytes sells to MSPs.