MSP M&A activity continued at a strong pace in February 2022. The evidence: In the second month of 2022, ChannelE2E monitored more than 70 technology mergers and acquisitions. The total number of M&A deals so far in 2022 climbed to 217 buyouts by the end of February.
Analyze the data, and here are 10 things to know about those M&A deals – specifically they relate to MSPs (managed service providers), MSSPs (managed security service providers), cybersecurity firms and IT consulting firms.
1. MSP Mergers and Acquisitions: More than 60 M&A deals (approximately 29%) in January and February 2022 relied heavily on MSPs.
2. Private Equity: A total of 66 M&A deals – or 30% of transactions – involve private equity firms. In some cases, private equity has acquired a “platform” MSP while preparing additional tuck-in purchases. In other cases, PE firms have quietly worked behind the scenes to put more MSPs into their current investments on the platform.
3. MSSP M&A Deals: Ten of the deals are related to the acquisition of MSSP. Major private equity and consumer finance markets include:
4. Cybersecurity M&A: Forty of the deals (18 percent) involved cybersecurity businesses. The latest buyers include Cloudflare, Darktrace and Imprivata (backed by private equity firm Thoma Bravo).
5. IT Consulting M&A: Thirty -six of the M&A deals in January and February involved IT consulting firms.
6. Government Solutions Provider M&A: Eight of the deals involve IT service providers, solutions providers, MSPs and consultancies in the government sector.
7. ServiceNow Partner M&A: Four of the deals involve ServiceNow partners – including the purchase of TELUS Fully Managed. Additionally, we’ve seen 56 deals with ServiceNow’s M&A partners since 2019 and expect to increase activity in the coming weeks.
8. Technology M&A Values: Only six of the 217 deals we tracked in January and February 2022 expressed deal valuation. Sure, we’ve heard about MSPs that are worth more than 10X annual EBITDA. But remember: Many M&A deals involve a more conservative valuation. Consider this: Converge Technology Solutions bought Paragon Development Systems for 5.8 times adjusted EBITDA. For more on MSP appreciations, check out our webcast in January 2022 with Paul Dippell of Service Leadership; it is available on-demand.
9. Year-to-Date M&A Surges: Overall, we tracked 217 technology M&A deals in January and February 2022, up 53 percent from 142 deals from the corresponding two -month 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 career to avoid potential tax increases on capital gains in 2022. Deals in December 2021 were announced in January 2022 and early February 2022.
- The numbers in early 2021, compared to the numbers in early 2022, are likely to be a bit soft as MSPs and technology companies in early 2021 are still navigating rising COVID issues. -19 which stopped some M&A discussions.
- Private equity firms continue to lean on the MSP market (and reliably recurring earnings) because valuations are lower than SaaS firms.
- Demographics suggest that a key market segment is “aging” business ownership. Rewind to 2015 and early 2016, and ChannelE2E predicts that M&A activity will peak in 2022 based solely on owner demographics.
- And finally, 2022 M&A figures (year to date) are likely to grow as ChannelE2E is increasingly the source that sends us information on deal flow. (Big-time thanks to all those resources.)
10. What M&A Deal Did We Miss ?: Did our global M&A list fail to track a particular merger or acquisition in January or February 2022 – specifically anything related to the MSP or MSSP? Drop me a line and let me know: [email protected].