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MSP acquisitions rise with platforms in demand

Recent merger and acquisition activity highlights a trend of private equity firms increasingly targeting MSP platform companies; more IT channel news.

MSP acquisitions are taking on a platform flavor as a bevy of private equity firms look to buy service providers on which to build larger businesses.

Recent developments include Rosewood Private Investments acquiring a majority stake in General Informatics, an MSP based in Baton Rouge, La. Dallas-based Rosewood's investment portfolio includes companies in sectors such as aerospace and defense as well as IT services.

Abe Garver, managing director at Focus Investment Banking, a merger and acquisition advisory firm based in Vienna, Va., said General Informatics is one of more than 40 private equity-backed MSP platforms worldwide. He said the platform trend started hitting its stride in 2018, when 16 platforms were launched. In 2020, 12 private equity-backed MSP platforms have been established. Focus has advised on four of those deals, including General Informatics.

Rosewood's private equity money will help General Informatics grow its platform, which will initially expand from Louisiana into a 10-state area.

"In the past, [General Informatics] had done some M&A, but this growth capital investment will really set the company up to do much larger transactions," Garver said.

The demand for MSP platform companies is such that candidates have become increasingly scarce. Garver said the universe of buyers "has just been expanding exponentially," as private equity groups lacking an MSP platform look for acquisition targets.

An MSP platform company typically has $2 million to $2.5 million of EBITDA, Garver said. The lack of platform-sized assets has led to some MSPs merging to gain the appropriate scale to become a platform. Garver said two of the four platforms he advised on in 2020 involved such combinations: the January merger of Enterprise Computing Services with My IT and the October merger of Domain Computer Services with Tier One Technology Partners. Both sets of companies had learned of each other through participation in ConnectWise peer groups, Garver noted.

Garver sees continuing demand for platforms and expects to see consolidation among older MSP platforms -- those established between 2014 and 2017 -- at some point. "Someone will come along and consolidate existing platforms into a larger MSP," he said.

Overall, the pace of MSP acquisitions is rebounding, with the demand for cloud consulting skills fueling M&A activity in the broader IT services market.

Briton Burge, principal at Rosewood, said he anticipates more MSP acquisitions, citing the continued growth in the importance of IT to businesses of all sizes.

"We believe that the tailwinds will continue to drive investor interest and activity in the space," he said. "Given the fragmentation of the market, we believe we will continue to see consolidation among regional and national players, and will likely see several new [private equity] platforms come to be."

General Informatics, meanwhile, will continue along a familiar path as it grows, but will see some changes, including a new president and the potential for an expanded vertical market reach. General Informatics has pursued business in government, healthcare, professional services and education.

Don Monistere, incoming president at General Informatics, said those existing verticals will provide an important foundation for the company's growth. But the company, he added, will continue to serve various industries and evaluate adding new verticals organically or through acquisition.

General Informatics founder and CEO Mohit Vij said the company's technology approach, which supports cloud and hybrid setups, will remain on track. Vij, who will continue as CEO, said General Informatics has developed a nimble technology stack that has evolved to accommodate market needs. "Going forward, we will continue with the same methodology, constantly evaluating and evolving our technology stack and partners," he said.

Consultants cite data analytics as investment area

Consulting firms point to data analytics as a leading investment area for enterprises.

When asked what emerging technologies they tried in response to the COVID-19 pandemic, 57% of the C-suite executives participating in a survey by West Monroe, a Chicago-based consulting firm, cited data/analytics platforms. That was the top technology among those polled. AI and machine learning tied for second, according to West Monroe. The survey polled 150 corporate leaders at companies with more than $250 million in revenue.

"Even before COVID-19, companies were moving toward making more data-based decisions for forecasting, planning and customer interactions," said Greg Layok, managing director of technology at West Monroe. "But at that time, there was more certainty and history to the data. Things also weren't moving as quickly."

But now, historical baselines are dissolving amid business, geopolitical and social changes, he noted.

"You're really flying blind, so people are using the technology to bring any certainty and prediction possible," Layok said.

A study from Windward Consulting Group, a Herndon, Va., company that specializes in IT operations and IT service management, also identified data analytics as an enterprise priority. In a recent Windward Consulting study, which surveyed about 300 IT executives at Fortune 1000 companies, data analytics and process optimization topped the list of investments under consideration.

Layok said he expects continued investment in data and analytics in 2021. However, he said he also anticipates enterprise investment in digital products and services, as well as in collaboration and remote technologies to improve employee experience.

Other news

  • West Monroe acquired Pace Harmon, a management consulting firm based in McLean, Va. The purchase provides West Monroe new capabilities in IT strategy and business process outsourcing, procurement and vendor management, according to the company. The acquisition is the largest ever for West Monroe.
  • Calligo, a managed data services provider based in Jersey, a British Crown dependency, acquired Cinnte Technologies, an MSP in Ireland. The deal is Calligo's eighth acquisition in three years. Calligo is a private equity-backed company, with Investcorp having made a $20 million investment in 2016.
  • Onica, an AWS premier consulting partner and Rackspace Technology company, completed a project with AutoPets, an automated pet care company, to stabilize AutoPets' AWS infrastructure and optimize the AWS IoT service. The project's aim was to tap AWS infrastructure to back the launch of AutoPets' updated iOS and upcoming Android app.
  • 2nd Watch, a professional and managed cloud services provider based in Seattle, added Spot instance and container optimization to its managed optimization service. Spot, a NetApp technology, focuses on public cloud management and cost optimization. NetApp in October unveiled tools that abstract compute and storage for containers.
  • 1Path, an MSP based in Atlanta, integrated its SaaS-based analytics offering with Vertafore's AMS360 database. Vertafore, based in Denver, provides technology to the insurance industry. The combined offering automates data integration.
  • WANdisco, a distributed computing software company based in San Ramon, Calif., launched a partner program in a bid to scale its business globally. The WANdisco LiveData Partner Network encompasses consulting firms, systems integrators, ISVs and resellers, among other channel companies. The program offers resources for sales, marketing, training and certification, and support through a new partner portal. WANdisco over the past year has transitioned from relying on direct sales and OEMs for 90% of its business to a partner-first model, according to the company.
  • Pax8, a cloud distributor based in Denver, said it is offering AirSlate's SignNow e-signature product to its partners.
  • Ingram Micro rolled out three partner enablement resources: IngramMicroTraining.com, which provides marketing, technical and sales training; RenewVue 2.0, which supports more than 80 brands and provides quotes to channel partners in advance of license expirations; and Flexible Financing, which offers partners terms, including 90-day first payment deferral on financing plans up to 60 months. In addition, the distributor appointed Tyler Coughlan as vice president of customer experience for its U.S. business.
  • MSP360, a multi-cloud data backup and disaster recovery solutions provider based in Pittsburgh, rolled out MSP360 Managed Backup version 4.7. Features include support for new AWS regions for MSPs and a new storage platform based on Wasabi's cloud storage technology. MSP360 also launched a beta version of MSP360 Managed Backup for Small Business.
  • 3SG Plus, a technology solutions provider based in Columbus, Ohio, joined Confluera's reseller program. Confluera, an autonomous detection and response company, unveiled its reseller initiative last month, signing Tevora, a management consulting firm, as its first partner.
  • NRD Companies, a group of global IT and consulting companies based in Norway, said its revenue grew 15% for the first nine months of 2020 compared with the same period last year. NRD Companies developed public sector management and economic digital infrastructure projects in 22 countries.
  • Peak-Ryzex, a digital supply chain and mobile workforce solutions provider based in Columbia, Md., appointed Brad Tracy as senior vice president of sales, North America, and Jim Polcaro as CIO.

Market Share is a news roundup published every Friday.

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