MSP M&A: January 2022 Scorecard

MSP M&A activity continued at a very fast pace in January 2022. The evidence: In the first month of 2022, ChannelE2E tracked nearly 150 technology mergers and acquisitions. 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: Nearly 50 M&A deals in January 2022 were highly dependent on MSPs.

2. Private Equity: About 40 M&A deals are involved with 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: Five of the deals involved the acquisition of MSSP. Major private equity and financial market buyers include Morgan Stanley (acquired Fusion Connect) and Worklyn Partners (acquired Quadrant Information Security).

4. Cybersecurity M&A: Twenty of the deals involved cybersecurity businesses – though we saw three more cyber M&A deals on the first day of February. The latest buyers include Arctic Wolf, Check Point Software and Forescout.

5. IT Consulting M&A: Twenty -seven of the M&A deals in January involved IT consulting firms.

6. Government Solutions Provider M&A: Six of the deals involve IT service providers, solutions providers, MSPs and consultancies in the government sector.

7. ServiceNow Partner M&A: Only two of the deals involve ServiceNow partners – although we’ve seen 54 deals with ServiceNow’s M&A partners since 2019 and expect activity to increase in the coming weeks.

8. Technology M&A Values: Only five of the 150 deals we tracked in January 2022 declared deal value. 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. January 2022 vs. January 2021 M&A Activity: Overall, we tracked 144 M&A deals in technology in January 2022, up 67 percent from 86 deals in January 2021. Among the reasons for the January 2022 surge in M&A activity, we suspect:

  • More companies completed deals in December 2021 in a race to avoid potential tax increases on capital gains in 2022. Deals in December 2021 were announced in January 2022 (once people returned from holiday).
  • The January 2021 numbers, compared to January 2022, are likely to be a bit soft as MSPs and technology companies are still navigating higher COVID-19 issues that have halted 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, M&A numbers are likely to grow in January 2022 as we increase the number of sources sending 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 2022 – specifically anything related to the MSP or MSSP? Drop me a line and let me know: [email protected].

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